Correlation Between BHP Group and Origin Energy

Can any of the company-specific risk be diversified away by investing in both BHP Group and Origin Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BHP Group and Origin Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BHP Group Limited and Origin Energy, you can compare the effects of market volatilities on BHP Group and Origin Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BHP Group with a short position of Origin Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Origin Energy.

Diversification Opportunities for BHP Group and Origin Energy

-0.59

Correlation Coefficient

BHP Group  Origin Energy

Excellent diversification

The 3 months correlation between BHP and Origin is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Origin Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Origin Energy and BHP Group is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BHP Group Limited are associated (or correlated) with Origin Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Origin Energy has no effect on the direction of BHP Group i.e., BHP Group and Origin Energy go up and down completely randomly.

Pair Corralation between BHP Group and Origin Energy

Assuming the 90 days trading horizon BHP Group Limited is expected to under-perform the Origin Energy. In addition to that, BHP Group is 1.15 times more volatile than Origin Energy. It trades about -0.1 of its total potential returns per unit of risk. Origin Energy is currently generating about 0.11 per unit of volatility. If you would invest  1,008  in Origin Energy on September 26, 2024 and sell it today you would earn a total of  81.00  from holding Origin Energy or generate 8.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

BHP Group Limited  vs.  Origin Energy

BHP Group Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHP Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Origin Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Origin Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Origin Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BHP Group and Origin Energy

The main advantage of trading using opposite BHP Group and Origin Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Origin Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Origin Energy will offset losses from the drop in Origin Energy's long position.

The idea behind BHP Group Limited and Origin Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.