Correlation Between BHP Group and Liberty Financial

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

Diversification Opportunities for BHP Group and Liberty Financial

-0.37

Correlation Coefficient

BHP Group  Liberty Financial

Very good diversification

The 3 months correlation between BHP and Liberty is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Liberty Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Liberty Financial 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 Liberty Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Liberty Financial has no effect on the direction of BHP Group i.e., BHP Group and Liberty Financial go up and down completely randomly.

Pair Corralation between BHP Group and Liberty Financial

Assuming the 90 days trading horizon BHP Group is expected to generate 22.34 times less return on investment than Liberty Financial. But when comparing it to its historical volatility, BHP Group Limited is 1.72 times less risky than Liberty Financial. It trades about 0.02 of its potential returns per unit of risk. Liberty Financial Group is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  315.00  in Liberty Financial Group on October 22, 2024 and sell it today you would earn a total of  59.00  from holding Liberty Financial Group or generate 18.73% 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.  Liberty Financial Group

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 comparatively stable basic indicators, BHP Group is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Liberty Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Liberty Financial Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Liberty Financial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and Liberty Financial

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

The idea behind BHP Group Limited and Liberty Financial 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.

Check out your portfolio center.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.