Correlation Between BHP Group and K2 Asset

Can any of the company-specific risk be diversified away by investing in both BHP Group and K2 Asset 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 K2 Asset 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 K2 Asset Management, you can compare the effects of market volatilities on BHP Group and K2 Asset 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 K2 Asset. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and K2 Asset.

Diversification Opportunities for BHP Group and K2 Asset

-0.67

Correlation Coefficient

BHP Group  K2 Asset

Excellent diversification

The 3 months correlation between BHP and KAM is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and K2 Asset Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K2 Asset Management 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 K2 Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K2 Asset Management has no effect on the direction of BHP Group i.e., BHP Group and K2 Asset go up and down completely randomly.

Pair Corralation between BHP Group and K2 Asset

Assuming the 90 days trading horizon BHP Group Limited is expected to under-perform the K2 Asset. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 4.33 times less risky than K2 Asset. The stock trades about -0.01 of its potential returns per unit of risk. The K2 Asset Management is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  6.80  in K2 Asset Management on October 5, 2024 and sell it today you would earn a total of  0.30  from holding K2 Asset Management or generate 4.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.68%
Values	Daily Returns

BHP Group Limited  vs.  K2 Asset Management

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 latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

K2 Asset Management

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in K2 Asset Management are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, K2 Asset unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and K2 Asset

The main advantage of trading using opposite BHP Group and K2 Asset positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, K2 Asset 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 K2 Asset will offset losses from the drop in K2 Asset's long position.

The idea behind BHP Group Limited and K2 Asset Management 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.