Correlation Between American Express and BHP Group

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

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

Diversification Opportunities for American Express and BHP Group

-0.32

Correlation Coefficient

American Express  BHP Group

Very good diversification

The 3 months correlation between American and BHP is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding American Express Co 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 American Express 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 American Express Co 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 American Express i.e., American Express and BHP Group go up and down completely randomly.

Pair Corralation between American Express and BHP Group

Assuming the 90 days trading horizon American Express is expected to generate 16.75 times less return on investment than BHP Group. But when comparing it to its historical volatility, American Express Co is 1.08 times less risky than BHP Group. It trades about 0.01 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,816,224  in BHP Group Limited on December 20, 2024 and sell it today you would earn a total of  413,776  from holding BHP Group Limited or generate 14.69% return on investment over 90 days.

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

American Express Co  vs.  BHP Group Limited

American Express

Risk-Adjusted Performance

Very Weak

Over the last 90 days American Express Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, American Express is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

BHP Group Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BHP Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Express and BHP Group

The main advantage of trading using opposite American Express and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Express 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 American Express Co 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.