Correlation Between Applied Materials and BHP Group

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

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

Diversification Opportunities for Applied Materials and BHP Group

0.74

Correlation Coefficient

Applied Materials  BHP Group

Poor diversification

The 3 months correlation between Applied and BHP is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Applied Materials 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 Applied Materials 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 Applied Materials 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 Applied Materials i.e., Applied Materials and BHP Group go up and down completely randomly.

Pair Corralation between Applied Materials and BHP Group

Assuming the 90 days horizon Applied Materials is expected to under-perform the BHP Group. In addition to that, Applied Materials is 1.64 times more volatile than BHP Group Limited. It trades about -0.12 of its total potential returns per unit of risk. BHP Group Limited is currently generating about -0.16 per unit of volatility. If you would invest  2,498  in BHP Group Limited on September 24, 2024 and sell it today you would lose (126.00) from holding BHP Group Limited or give up 5.04% of portfolio value over 90 days.

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

Applied Materials  vs.  BHP Group Limited

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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. Despite latest fragile performance, the Stock's basic 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 Applied Materials and BHP Group

The main advantage of trading using opposite Applied Materials and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Applied Materials 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 Applied Materials 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.