Correlation Between BHP Group and Iluka Resources

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

Diversification Opportunities for BHP Group and Iluka Resources

0.81

Correlation Coefficient

BHP Group  Iluka Resources

Very poor diversification

The 3 months correlation between BHP and Iluka is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Iluka Resources Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iluka Resources 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 Iluka Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iluka Resources has no effect on the direction of BHP Group i.e., BHP Group and Iluka Resources go up and down completely randomly.

Pair Corralation between BHP Group and Iluka Resources

Considering the 90-day investment horizon BHP Group Limited is expected to generate 0.57 times more return on investment than Iluka Resources. However, BHP Group Limited is 1.77 times less risky than Iluka Resources. It trades about 0.03 of its potential returns per unit of risk. Iluka Resources Ltd is currently generating about -0.07 per unit of risk. If you would invest  5,220  in BHP Group Limited on September 12, 2024 and sell it today you would earn a total of  120.00  from holding BHP Group Limited or generate 2.3% return on investment over 90 days.

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

BHP Group Limited  vs.  Iluka Resources Ltd

BHP Group Limited

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, BHP Group is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Iluka Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iluka Resources Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with BHP Group and Iluka Resources

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

The idea behind BHP Group Limited and Iluka Resources Ltd 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.