Correlation Between AfroCentric Investment and BHP Group

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

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

Diversification Opportunities for AfroCentric Investment and BHP Group

0.62

Correlation Coefficient

AfroCentric Investment  BHP Group

Poor diversification

The 3 months correlation between AfroCentric and BHP is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding AfroCentric Investment Corp 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 AfroCentric Investment 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 AfroCentric Investment Corp 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 AfroCentric Investment i.e., AfroCentric Investment and BHP Group go up and down completely randomly.

Pair Corralation between AfroCentric Investment and BHP Group

Assuming the 90 days trading horizon AfroCentric Investment Corp is expected to generate 2.86 times more return on investment than BHP Group. However, AfroCentric Investment is 2.86 times more volatile than BHP Group Limited. It trades about 0.02 of its potential returns per unit of risk. BHP Group Limited is currently generating about -0.17 per unit of risk. If you would invest  20,900  in AfroCentric Investment Corp on September 24, 2024 and sell it today you would earn a total of  100.00  from holding AfroCentric Investment Corp or generate 0.48% return on investment over 90 days.

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

AfroCentric Investment Corp  vs.  BHP Group Limited

AfroCentric Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AfroCentric Investment Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

BHP Group Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHP Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with AfroCentric Investment and BHP Group

The main advantage of trading using opposite AfroCentric Investment and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AfroCentric Investment 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 AfroCentric Investment Corp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.