Correlation Between Datatec and BHP Group

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

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

Diversification Opportunities for Datatec and BHP Group

-0.03

Correlation Coefficient

Datatec  BHP Group

Good diversification

The 3 months correlation between Datatec and BHP is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Datatec and BHP Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group Limited and Datatec 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 Datatec are associated (or correlated) with BHP Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group Limited has no effect on the direction of Datatec i.e., Datatec and BHP Group go up and down completely randomly.

Pair Corralation between Datatec and BHP Group

Assuming the 90 days trading horizon Datatec is expected to generate 1.15 times more return on investment than BHP Group. However, Datatec is 1.15 times more volatile than BHP Group Limited. It trades about 0.19 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.07 per unit of risk. If you would invest  366,600  in Datatec on September 5, 2024 and sell it today you would earn a total of  84,700  from holding Datatec or generate 23.1% return on investment over 90 days.

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

Datatec  vs.  BHP Group Limited

Datatec

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Datatec are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Datatec exhibited solid returns over the last few months and may actually be approaching a breakup point.

BHP Group Limited

Risk-Adjusted Performance

5 of 100

Modest

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 rather unsteady technical and fundamental indicators, BHP Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Datatec and BHP Group

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

The idea behind Datatec and BHP Group Limited 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.