Correlation Between BHP Group and Telecom Argentina

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

Diversification Opportunities for BHP Group and Telecom Argentina

-0.5

Correlation Coefficient

BHP Group  Telecom Argentina

Very good diversification

The 3 months correlation between BHP and Telecom is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Telecom Argentina in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecom Argentina 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 Telecom Argentina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecom Argentina has no effect on the direction of BHP Group i.e., BHP Group and Telecom Argentina go up and down completely randomly.

Pair Corralation between BHP Group and Telecom Argentina

Assuming the 90 days trading horizon BHP Group Limited is expected to generate 0.54 times more return on investment than Telecom Argentina. However, BHP Group Limited is 1.85 times less risky than Telecom Argentina. It trades about 0.06 of its potential returns per unit of risk. Telecom Argentina is currently generating about 0.0 per unit of risk. If you would invest  2,925,000  in BHP Group Limited on November 28, 2024 and sell it today you would earn a total of  160,000  from holding BHP Group Limited or generate 5.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BHP Group Limited  vs.  Telecom Argentina

BHP Group Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BHP Group may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Telecom Argentina

Risk-Adjusted Performance

Very Weak

Over the last 90 days Telecom Argentina has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Telecom Argentina is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BHP Group and Telecom Argentina

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

The idea behind BHP Group Limited and Telecom Argentina 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.