Correlation Between BHP Group and Gossan Resources

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

Diversification Opportunities for BHP Group and Gossan Resources

0.69

Correlation Coefficient

BHP Group  Gossan Resources

Poor diversification

The 3 months correlation between BHP and Gossan is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Gossan Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gossan Resources 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 Gossan Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gossan Resources has no effect on the direction of BHP Group i.e., BHP Group and Gossan Resources go up and down completely randomly.

Pair Corralation between BHP Group and Gossan Resources

Assuming the 90 days horizon BHP Group Limited is expected to under-perform the Gossan Resources. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 40.86 times less risky than Gossan Resources. The stock trades about -0.04 of its potential returns per unit of risk. The Gossan Resources is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1.05  in Gossan Resources on November 29, 2024 and sell it today you would earn a total of  0.15  from holding Gossan Resources or generate 14.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

BHP Group Limited  vs.  Gossan Resources

BHP Group Limited

Risk-Adjusted Performance

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 nearly stable basic indicators, BHP Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Gossan Resources

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gossan Resources are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gossan Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and Gossan Resources

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

The idea behind BHP Group Limited and Gossan Resources 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.