Correlation Between BHP Group and Power Metals

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

Diversification Opportunities for BHP Group and Power Metals

-0.46

Correlation Coefficient

BHP Group  Power Metals

Very good diversification

The 3 months correlation between BHP and Power is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Power Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Power Metals Corp 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 Power Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Power Metals Corp has no effect on the direction of BHP Group i.e., BHP Group and Power Metals go up and down completely randomly.

Pair Corralation between BHP Group and Power Metals

Assuming the 90 days horizon BHP Group is expected to generate 33.98 times less return on investment than Power Metals. But when comparing it to its historical volatility, BHP Group Limited is 3.67 times less risky than Power Metals. It trades about 0.0 of its potential returns per unit of risk. Power Metals Corp is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  27.00  in Power Metals Corp on October 22, 2024 and sell it today you would earn a total of  2.00  from holding Power Metals Corp or generate 7.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

BHP Group Limited  vs.  Power Metals Corp

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.

Power Metals Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Power Metals Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Power Metals reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and Power Metals

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

The idea behind BHP Group Limited and Power Metals Corp 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.