Correlation Between BHP Group and Star Diamond

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

Diversification Opportunities for BHP Group and Star Diamond

-0.22

Correlation Coefficient

BHP Group  Star Diamond

Very good diversification

The 3 months correlation between BHP and Star is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Star Diamond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Star Diamond 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 Star Diamond. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Star Diamond has no effect on the direction of BHP Group i.e., BHP Group and Star Diamond go up and down completely randomly.

Pair Corralation between BHP Group and Star Diamond

Assuming the 90 days trading horizon BHP Group Limited is expected to under-perform the Star Diamond. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 12.46 times less risky than Star Diamond. The stock trades about -0.01 of its potential returns per unit of risk. The Star Diamond is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1.05  in Star Diamond on December 27, 2024 and sell it today you would earn a total of  4.20  from holding Star Diamond or generate 400.0% return on investment over 90 days.

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

BHP Group Limited  vs.  Star Diamond

BHP Group Limited

Risk-Adjusted Performance

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 nearly stable basic indicators, BHP Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Star Diamond

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Star Diamond are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Star Diamond reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and Star Diamond

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

The idea behind BHP Group Limited and Star Diamond 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.