Correlation Between BHP Group and American Express

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

Diversification Opportunities for BHP Group and American Express

0.2

Correlation Coefficient

BHP Group  American Express

Modest diversification

The 3 months correlation between BHP and American is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and American Express Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Express 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 American Express. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Express has no effect on the direction of BHP Group i.e., BHP Group and American Express go up and down completely randomly.

Pair Corralation between BHP Group and American Express

Assuming the 90 days trading horizon BHP Group is expected to generate 2.01 times less return on investment than American Express. In addition to that, BHP Group is 1.12 times more volatile than American Express Co. It trades about 0.08 of its total potential returns per unit of risk. American Express Co is currently generating about 0.17 per unit of volatility. If you would invest  363,500  in American Express Co on October 11, 2024 and sell it today you would earn a total of  2,016,500  from holding American Express Co or generate 554.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.58%
Values	Daily Returns

BHP Group Limited  vs.  American Express Co

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. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

American Express

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Express Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with BHP Group and American Express

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

The idea behind BHP Group Limited and American Express Co 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.