Correlation Between BHP Group and IperionX Limited

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

Diversification Opportunities for BHP Group and IperionX Limited

0.13

Correlation Coefficient

BHP Group  IperionX Limited

Average diversification

The 3 months correlation between BHP and IperionX is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and IperionX Limited American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IperionX Limited American 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 IperionX Limited. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IperionX Limited American has no effect on the direction of BHP Group i.e., BHP Group and IperionX Limited go up and down completely randomly.

Pair Corralation between BHP Group and IperionX Limited

Considering the 90-day investment horizon BHP Group is expected to generate 18.19 times less return on investment than IperionX Limited. But when comparing it to its historical volatility, BHP Group Limited is 1.79 times less risky than IperionX Limited. It trades about 0.02 of its potential returns per unit of risk. IperionX Limited American is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  1,798  in IperionX Limited American on August 31, 2024 and sell it today you would earn a total of  1,112  from holding IperionX Limited American or generate 61.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

BHP Group Limited  vs.  IperionX Limited American

BHP Group Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 1 (%) 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.

IperionX Limited American

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IperionX Limited American are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, IperionX Limited showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and IperionX Limited

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

The idea behind BHP Group Limited and IperionX Limited American 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.