Correlation Between BHP Group and Power Metals

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

Diversification Opportunities for BHP Group and Power Metals

0.64

Correlation Coefficient

BHP Group  Power Metals

Poor diversification

The 3 months correlation between BHP and Power is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Power Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Metals Corp 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 Power Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Metals Corp has no effect on the direction of BHP Group i.e., BHP Group and Power Metals go up and down completely randomly.

Pair Corralation between BHP Group and Power Metals

Assuming the 90 days horizon BHP Group is expected to generate 1.6 times less return on investment than Power Metals. In addition to that, BHP Group is 1.13 times more volatile than Power Metals Corp. It trades about 0.08 of its total potential returns per unit of risk. Power Metals Corp is currently generating about 0.15 per unit of volatility. If you would invest  19.00  in Power Metals Corp on September 3, 2024 and sell it today you would earn a total of  8.00  from holding Power Metals Corp or generate 42.11% return on investment over 90 days.

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

BHP Group Limited  vs.  Power Metals Corp

BHP Group Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak essential indicators, BHP Group reported solid returns over the last few months and may actually be approaching a breakup point.

Power Metals Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Power Metals Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Power Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and Power Metals

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

The idea behind BHP Group Limited and Power Metals Corp 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.