Correlation Between Asia Broadband and BHP Group

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

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

Diversification Opportunities for Asia Broadband and BHP Group

0.23

Correlation Coefficient

Asia Broadband  BHP Group

Modest diversification

The 3 months correlation between Asia and BHP is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Asia Broadband 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 Asia Broadband 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 Asia Broadband 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 Asia Broadband i.e., Asia Broadband and BHP Group go up and down completely randomly.

Pair Corralation between Asia Broadband and BHP Group

Given the investment horizon of 90 days Asia Broadband is expected to generate 1.46 times more return on investment than BHP Group. However, Asia Broadband is 1.46 times more volatile than BHP Group Limited. It trades about 0.11 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.02 per unit of risk. If you would invest  1.96  in Asia Broadband on December 2, 2024 and sell it today you would earn a total of  0.42  from holding Asia Broadband or generate 21.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.56%
Values	Daily Returns

Asia Broadband  vs.  BHP Group Limited

Asia Broadband

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Broadband are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Asia Broadband may actually be approaching a critical reversion point that can send shares even higher in April 2025.

BHP Group Limited

Risk-Adjusted Performance

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 latest weak performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Asia Broadband and BHP Group

The main advantage of trading using opposite Asia Broadband and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Asia Broadband 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 Asia Broadband 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.