Correlation Between Anglo American and BHP Group

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

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

Diversification Opportunities for Anglo American and BHP Group

0.73

Correlation Coefficient

Anglo American  BHP Group

Poor diversification

The 3 months correlation between Anglo and BHP is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Anglo American PLC 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 Anglo American 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 Anglo American PLC 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 Anglo American i.e., Anglo American and BHP Group go up and down completely randomly.

Pair Corralation between Anglo American and BHP Group

Assuming the 90 days horizon Anglo American is expected to generate 1.6 times less return on investment than BHP Group. But when comparing it to its historical volatility, Anglo American PLC is 1.95 times less risky than BHP Group. It trades about 0.07 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,320  in BHP Group Limited on August 31, 2024 and sell it today you would earn a total of  269.00  from holding BHP Group Limited or generate 11.59% return on investment over 90 days.

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

Anglo American PLC  vs.  BHP Group Limited

Anglo American PLC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Anglo American may actually be approaching a critical reversion point that can send shares even higher in December 2024.

BHP Group Limited

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 4 (%) 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.

Pair Trading with Anglo American and BHP Group

The main advantage of trading using opposite Anglo American and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anglo American 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 Anglo American PLC 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.

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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 Money Managers module to screen money managers from public funds and ETFs managed around the world.