Correlation Between BHP Group and Ferroglobe PLC

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

Diversification Opportunities for BHP Group and Ferroglobe PLC

0.08

Correlation Coefficient

BHP Group  Ferroglobe PLC

Significant diversification

The 3 months correlation between BHP and Ferroglobe is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Ferroglobe PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferroglobe PLC 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 Ferroglobe PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferroglobe PLC has no effect on the direction of BHP Group i.e., BHP Group and Ferroglobe PLC go up and down completely randomly.

Pair Corralation between BHP Group and Ferroglobe PLC

Considering the 90-day investment horizon BHP Group Limited is expected to generate 0.44 times more return on investment than Ferroglobe PLC. However, BHP Group Limited is 2.25 times less risky than Ferroglobe PLC. It trades about 0.04 of its potential returns per unit of risk. Ferroglobe PLC is currently generating about -0.01 per unit of risk. If you would invest  4,782  in BHP Group Limited on December 28, 2024 and sell it today you would earn a total of  110.00  from holding BHP Group Limited or generate 2.3% return on investment over 90 days.

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

BHP Group Limited  vs.  Ferroglobe PLC

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 2 (%) 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 recent stock price agitation, may contribute to short-term losses for the retail investors.

Ferroglobe PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ferroglobe PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Ferroglobe PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with BHP Group and Ferroglobe PLC

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

The idea behind BHP Group Limited and Ferroglobe PLC 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.