Correlation Between BHP Group and China Molybdenum

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

Diversification Opportunities for BHP Group and China Molybdenum

0.8

Correlation Coefficient

BHP Group  China Molybdenum

Very poor diversification

The 3 months correlation between BHP and China is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and China Molybdenum Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Molybdenum 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 China Molybdenum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Molybdenum has no effect on the direction of BHP Group i.e., BHP Group and China Molybdenum go up and down completely randomly.

Pair Corralation between BHP Group and China Molybdenum

Assuming the 90 days horizon BHP Group Limited is expected to generate 1.01 times more return on investment than China Molybdenum. However, BHP Group is 1.01 times more volatile than China Molybdenum Co. It trades about -0.01 of its potential returns per unit of risk. China Molybdenum Co is currently generating about -0.08 per unit of risk. If you would invest  2,728  in BHP Group Limited on September 22, 2024 and sell it today you would lose (278.00) from holding BHP Group Limited or give up 10.19% of portfolio value over 90 days.

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

BHP Group Limited  vs.  China Molybdenum Co

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. Despite nearly stable essential indicators, BHP Group is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

China Molybdenum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Molybdenum Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with BHP Group and China Molybdenum

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

The idea behind BHP Group Limited and China Molybdenum Co 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.