Correlation Between BHP Group and Peninsula Energy

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

Diversification Opportunities for BHP Group and Peninsula Energy

0.59

Correlation Coefficient

BHP Group  Peninsula Energy

Very weak diversification

The 3 months correlation between BHP and Peninsula is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Peninsula Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Peninsula Energy 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 Peninsula Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Peninsula Energy has no effect on the direction of BHP Group i.e., BHP Group and Peninsula Energy go up and down completely randomly.

Pair Corralation between BHP Group and Peninsula Energy

Assuming the 90 days trading horizon BHP Group Limited is expected to generate 0.27 times more return on investment than Peninsula Energy. However, BHP Group Limited is 3.73 times less risky than Peninsula Energy. It trades about 0.03 of its potential returns per unit of risk. Peninsula Energy Limited is currently generating about -0.02 per unit of risk. If you would invest  2,400  in BHP Group Limited on September 16, 2024 and sell it today you would earn a total of  66.00  from holding BHP Group Limited or generate 2.75% return on investment over 90 days.

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

BHP Group Limited  vs.  Peninsula Energy Limited

BHP Group Limited

Risk-Adjusted Performance

2 of 100

Weak

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

Peninsula Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peninsula Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with BHP Group and Peninsula Energy

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

The idea behind BHP Group Limited and Peninsula Energy 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..