Correlation Between BHP Group and Block

Can any of the company-specific risk be diversified away by investing in both BHP Group and Block 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 Block 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 Block Inc, you can compare the effects of market volatilities on BHP Group and Block 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 Block. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Block.

Diversification Opportunities for BHP Group and Block

-0.13

Correlation Coefficient

BHP Group  Block

Good diversification

The 3 months correlation between BHP and Block is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Block Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Block Inc 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 Block. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Block Inc has no effect on the direction of BHP Group i.e., BHP Group and Block go up and down completely randomly.

Pair Corralation between BHP Group and Block

Assuming the 90 days trading horizon BHP Group is expected to generate 5.81 times less return on investment than Block. But when comparing it to its historical volatility, BHP Group Limited is 1.69 times less risky than Block. It trades about 0.07 of its potential returns per unit of risk. Block Inc is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  9,799  in Block Inc on September 3, 2024 and sell it today you would earn a total of  4,032  from holding Block Inc or generate 41.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BHP Group Limited  vs.  Block Inc

BHP Group Limited

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, BHP Group is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Block Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Block Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Block unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and Block

The main advantage of trading using opposite BHP Group and Block positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Block 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 Block will offset losses from the drop in Block's long position.

The idea behind BHP Group Limited and Block Inc 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.