Correlation Between BHP Group and First Graphene

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

Diversification Opportunities for BHP Group and First Graphene

0.85

Correlation Coefficient

BHP Group  First Graphene

Very poor diversification

The 3 months correlation between BHP and First is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and First Graphene in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Graphene 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 First Graphene. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Graphene has no effect on the direction of BHP Group i.e., BHP Group and First Graphene go up and down completely randomly.

Pair Corralation between BHP Group and First Graphene

Assuming the 90 days horizon BHP Group Limited is expected to under-perform the First Graphene. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 4.51 times less risky than First Graphene. The stock trades about -0.03 of its potential returns per unit of risk. The First Graphene is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  3.60  in First Graphene on October 8, 2024 and sell it today you would lose (1.60) from holding First Graphene or give up 44.44% of portfolio value over 90 days.

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

BHP Group Limited  vs.  First Graphene

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

First Graphene

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Graphene has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Graphene is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BHP Group and First Graphene

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

The idea behind BHP Group Limited and First Graphene 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.