Correlation Between Boeing and BHP

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Can any of the company-specific risk be diversified away by investing in both Boeing and BHP 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 Boeing and BHP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Boeing and BHP Group, you can compare the effects of market volatilities on Boeing and BHP 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 Boeing with a short position of BHP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Boeing and BHP.

Diversification Opportunities for Boeing and BHP

0.01
  Correlation Coefficient

Significant diversification

The 3 months correlation between Boeing and BHP is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding The Boeing and BHP Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group and Boeing 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 The Boeing are associated (or correlated) with BHP. 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 has no effect on the direction of Boeing i.e., Boeing and BHP go up and down completely randomly.

Pair Corralation between Boeing and BHP

Assuming the 90 days horizon The Boeing is expected to under-perform the BHP. In addition to that, Boeing is 1.45 times more volatile than BHP Group. It trades about -0.01 of its total potential returns per unit of risk. BHP Group is currently generating about 0.05 per unit of volatility. If you would invest  94,911  in BHP Group on September 28, 2024 and sell it today you would earn a total of  19,009  from holding BHP Group or generate 20.03% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy99.63%
ValuesDaily Returns

The Boeing  vs.  BHP Group

 Performance 
       Timeline  
Boeing 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Boeing showed solid returns over the last few months and may actually be approaching a breakup point.
BHP Group 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days BHP Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, BHP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Boeing and BHP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Boeing and BHP

The main advantage of trading using opposite Boeing and BHP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Boeing position performs unexpectedly, BHP 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 will offset losses from the drop in BHP's long position.
The idea behind The Boeing and BHP Group 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.

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