Correlation Between BHP Group and L1 Long

Can any of the company-specific risk be diversified away by investing in both BHP Group and L1 Long 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 L1 Long 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 L1 Long Short, you can compare the effects of market volatilities on BHP Group and L1 Long 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 L1 Long. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and L1 Long.

Diversification Opportunities for BHP Group and L1 Long

-0.09

Correlation Coefficient

BHP Group  L1 Long

Good diversification

The 3 months correlation between BHP and LSF is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and L1 Long Short in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on L1 Long Short 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 L1 Long. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of L1 Long Short has no effect on the direction of BHP Group i.e., BHP Group and L1 Long go up and down completely randomly.

Pair Corralation between BHP Group and L1 Long

Assuming the 90 days trading horizon BHP Group Limited is expected to generate 0.91 times more return on investment than L1 Long. However, BHP Group Limited is 1.1 times less risky than L1 Long. It trades about 0.03 of its potential returns per unit of risk. L1 Long Short is currently generating about -0.02 per unit of risk. If you would invest  3,905  in BHP Group Limited on December 28, 2024 and sell it today you would earn a total of  59.00  from holding BHP Group Limited or generate 1.51% 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.  L1 Long Short

BHP Group Limited

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

L1 Long Short

Risk-Adjusted Performance

Very Weak

Over the last 90 days L1 Long Short has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, L1 Long is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BHP Group and L1 Long

The main advantage of trading using opposite BHP Group and L1 Long positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, L1 Long 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 L1 Long will offset losses from the drop in L1 Long's long position.

The idea behind BHP Group Limited and L1 Long Short 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.