Correlation Between BHP Group and Life Healthcare

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

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

Diversification Opportunities for BHP Group and Life Healthcare

-0.17

Correlation Coefficient

BHP Group  Life Healthcare

Good diversification

The 3 months correlation between BHP and Life is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Life Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Life Healthcare and BHP Group 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 BHP Group Limited are associated (or correlated) with Life Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Life Healthcare has no effect on the direction of BHP Group i.e., BHP Group and Life Healthcare go up and down completely randomly.

Pair Corralation between BHP Group and Life Healthcare

Assuming the 90 days trading horizon BHP Group Limited is expected to under-perform the Life Healthcare. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 1.15 times less risky than Life Healthcare. The stock trades about -0.05 of its potential returns per unit of risk. The Life Healthcare is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  129,300  in Life Healthcare on September 29, 2024 and sell it today you would earn a total of  34,100  from holding Life Healthcare or generate 26.37% return on investment over 90 days.

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

BHP Group Limited  vs.  Life Healthcare

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 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.

Life Healthcare

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Life Healthcare are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Life Healthcare is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BHP Group and Life Healthcare

The main advantage of trading using opposite BHP Group and Life Healthcare positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Life Healthcare 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 Life Healthcare will offset losses from the drop in Life Healthcare's long position.

The idea behind BHP Group Limited and Life Healthcare 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.