Correlation Between BHP Group and Otto Energy
Can any of the company-specific risk be diversified away by investing in both BHP Group and Otto Energy 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 Otto Energy 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 Otto Energy, you can compare the effects of market volatilities on BHP Group and Otto Energy 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 Otto Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Otto Energy.
Diversification Opportunities for BHP Group and Otto Energy
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BHP and Otto is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Otto Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otto Energy 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 Otto Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otto Energy has no effect on the direction of BHP Group i.e., BHP Group and Otto Energy go up and down completely randomly.
Pair Corralation between BHP Group and Otto Energy
Assuming the 90 days trading horizon BHP Group is expected to generate 44.36 times less return on investment than Otto Energy. But when comparing it to its historical volatility, BHP Group Limited is 5.58 times less risky than Otto Energy. It trades about 0.01 of its potential returns per unit of risk. Otto Energy is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 1.00 in Otto Energy on October 25, 2024 and sell it today you would earn a total of 0.10 from holding Otto Energy or generate 10.0% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 95.0% |
Values | Daily Returns |
BHP Group Limited vs. Otto Energy
Performance |
Timeline |
BHP Group Limited |
Otto Energy |
BHP Group and Otto Energy Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with BHP Group and Otto Energy
The main advantage of trading using opposite BHP Group and Otto Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Otto Energy 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 Otto Energy will offset losses from the drop in Otto Energy's long position.BHP Group vs. Iron Road | BHP Group vs. Wt Financial Group | BHP Group vs. MA Financial Group | BHP Group vs. Sequoia Financial Group |
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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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