Correlation Between BHP Group and Eramet SA

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

Diversification Opportunities for BHP Group and Eramet SA

0.54

Correlation Coefficient

BHP Group  Eramet SA

Very weak diversification

The 3 months correlation between BHP and Eramet is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Eramet SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eramet SA ADR 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 Eramet SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eramet SA ADR has no effect on the direction of BHP Group i.e., BHP Group and Eramet SA go up and down completely randomly.

Pair Corralation between BHP Group and Eramet SA

Assuming the 90 days horizon BHP Group Limited is expected to generate 1.28 times more return on investment than Eramet SA. However, BHP Group is 1.28 times more volatile than Eramet SA ADR. It trades about -0.01 of its potential returns per unit of risk. Eramet SA ADR is currently generating about -0.05 per unit of risk. If you would invest  2,750  in BHP Group Limited on September 13, 2024 and sell it today you would lose (230.00) from holding BHP Group Limited or give up 8.36% of portfolio value over 90 days.

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

BHP Group Limited  vs.  Eramet SA ADR

BHP Group Limited

Risk-Adjusted Performance

0 of 100

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

Eramet SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eramet SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with BHP Group and Eramet SA

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

The idea behind BHP Group Limited and Eramet SA ADR 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.