Correlation Between BHP Group and American Helium

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

Diversification Opportunities for BHP Group and American Helium

0.6

Correlation Coefficient

BHP Group  American Helium

Poor diversification

The 3 months correlation between BHP and American is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and American Helium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Helium 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 Helium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Helium has no effect on the direction of BHP Group i.e., BHP Group and American Helium go up and down completely randomly.

Pair Corralation between BHP Group and American Helium

Considering the 90-day investment horizon BHP Group is expected to generate 5.42 times less return on investment than American Helium. But when comparing it to its historical volatility, BHP Group Limited is 2.4 times less risky than American Helium. It trades about 0.05 of its potential returns per unit of risk. American Helium is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  11.00  in American Helium on December 28, 2024 and sell it today you would earn a total of  2.00  from holding American Helium or generate 18.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.83%
Values	Daily Returns

BHP Group Limited  vs.  American Helium

BHP Group Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, BHP Group is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

American Helium

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Helium are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, American Helium reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and American Helium

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

The idea behind BHP Group Limited and American Helium 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.