Correlation Between BHP and Fibra Plus

Can any of the company-specific risk be diversified away by investing in both BHP and Fibra Plus 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 and Fibra Plus into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BHP Group and Fibra Plus, you can compare the effects of market volatilities on BHP and Fibra Plus 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 with a short position of Fibra Plus. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP and Fibra Plus.

Diversification Opportunities for BHP and Fibra Plus

-0.33

Correlation Coefficient

BHP  Fibra Plus

Very good diversification

The 3 months correlation between BHP and Fibra is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group and Fibra Plus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fibra Plus and BHP 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 are associated (or correlated) with Fibra Plus. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fibra Plus has no effect on the direction of BHP i.e., BHP and Fibra Plus go up and down completely randomly.

Pair Corralation between BHP and Fibra Plus

Assuming the 90 days trading horizon BHP Group is expected to generate 0.13 times more return on investment than Fibra Plus. However, BHP Group is 7.97 times less risky than Fibra Plus. It trades about -0.13 of its potential returns per unit of risk. Fibra Plus is currently generating about -0.02 per unit of risk. If you would invest  117,586  in BHP Group on September 27, 2024 and sell it today you would lose (3,666) from holding BHP Group or give up 3.12% of portfolio value over 90 days.

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

BHP Group  vs.  Fibra Plus

BHP Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHP Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, BHP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fibra Plus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fibra Plus has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Fibra Plus is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BHP and Fibra Plus

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

The idea behind BHP Group and Fibra Plus 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.