Correlation Between BHP Group and Peak Resources

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

Diversification Opportunities for BHP Group and Peak Resources

0.05

Correlation Coefficient

BHP Group  Peak Resources

Significant diversification

The 3 months correlation between BHP and Peak is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Peak Resources Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peak Resources 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 Peak Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peak Resources has no effect on the direction of BHP Group i.e., BHP Group and Peak Resources go up and down completely randomly.

Pair Corralation between BHP Group and Peak Resources

Assuming the 90 days trading horizon BHP Group Limited is expected to generate 0.19 times more return on investment than Peak Resources. However, BHP Group Limited is 5.14 times less risky than Peak Resources. It trades about 0.1 of its potential returns per unit of risk. Peak Resources Limited is currently generating about -0.04 per unit of risk. If you would invest  2,253  in BHP Group Limited on September 4, 2024 and sell it today you would earn a total of  262.00  from holding BHP Group Limited or generate 11.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.46%
Values	Daily Returns

BHP Group Limited  vs.  Peak Resources Limited

BHP Group Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, BHP Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Peak Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peak Resources Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with BHP Group and Peak Resources

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

The idea behind BHP Group Limited and Peak Resources Limited 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.