Correlation Between BHP Group and Tamawood
Can any of the company-specific risk be diversified away by investing in both BHP Group and Tamawood 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 Tamawood 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 Tamawood, you can compare the effects of market volatilities on BHP Group and Tamawood 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 Tamawood. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Tamawood.
Diversification Opportunities for BHP Group and Tamawood
Significant diversification
The 3 months correlation between BHP and Tamawood is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Tamawood in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tamawood 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 Tamawood. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tamawood has no effect on the direction of BHP Group i.e., BHP Group and Tamawood go up and down completely randomly.
Pair Corralation between BHP Group and Tamawood
Assuming the 90 days trading horizon BHP Group Limited is expected to generate 1.76 times more return on investment than Tamawood. However, BHP Group is 1.76 times more volatile than Tamawood. It trades about -0.03 of its potential returns per unit of risk. Tamawood is currently generating about -0.39 per unit of risk. If you would invest 4,020 in BHP Group Limited on September 25, 2024 and sell it today you would lose (30.00) from holding BHP Group Limited or give up 0.75% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
BHP Group Limited vs. Tamawood
Performance |
Timeline |
BHP Group Limited |
Tamawood |
BHP Group and Tamawood Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with BHP Group and Tamawood
The main advantage of trading using opposite BHP Group and Tamawood positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Tamawood 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 Tamawood will offset losses from the drop in Tamawood's long position.BHP Group vs. Northern Star Resources | BHP Group vs. Evolution Mining | BHP Group vs. Bluescope Steel | BHP Group vs. Aneka Tambang Tbk |
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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