Correlation Between BHP Group and Trematon Capital

Can any of the company-specific risk be diversified away by investing in both BHP Group and Trematon Capital 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 Trematon Capital 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 Trematon Capital Investments, you can compare the effects of market volatilities on BHP Group and Trematon Capital 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 Trematon Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Trematon Capital.

Diversification Opportunities for BHP Group and Trematon Capital

0.24

Correlation Coefficient

BHP Group  Trematon Capital

Modest diversification

The 3 months correlation between BHP and Trematon is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Trematon Capital Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trematon Capital Inv 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 Trematon Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trematon Capital Inv has no effect on the direction of BHP Group i.e., BHP Group and Trematon Capital go up and down completely randomly.

Pair Corralation between BHP Group and Trematon Capital

Assuming the 90 days trading horizon BHP Group Limited is expected to under-perform the Trematon Capital. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 4.5 times less risky than Trematon Capital. The stock trades about -0.16 of its potential returns per unit of risk. The Trematon Capital Investments is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  22,000  in Trematon Capital Investments on October 1, 2024 and sell it today you would earn a total of  2,800  from holding Trematon Capital Investments or generate 12.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.44%
Values	Daily Returns

BHP Group Limited  vs.  Trematon Capital Investments

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.

Trematon Capital Inv

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Trematon Capital Investments are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Trematon Capital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and Trematon Capital

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

The idea behind BHP Group Limited and Trematon Capital Investments 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.