Correlation Between BHP Group and Anglo American

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

Diversification Opportunities for BHP Group and Anglo American

0.73

Correlation Coefficient

BHP Group  Anglo American

Poor diversification

The 3 months correlation between BHP and Anglo is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Anglo American PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American PLC 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 Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American PLC has no effect on the direction of BHP Group i.e., BHP Group and Anglo American go up and down completely randomly.

Pair Corralation between BHP Group and Anglo American

Assuming the 90 days horizon BHP Group Limited is expected to generate 1.9 times more return on investment than Anglo American. However, BHP Group is 1.9 times more volatile than Anglo American PLC. It trades about 0.01 of its potential returns per unit of risk. Anglo American PLC is currently generating about 0.0 per unit of risk. If you would invest  2,758  in BHP Group Limited on August 30, 2024 and sell it today you would lose (169.00) from holding BHP Group Limited or give up 6.13% of portfolio value over 90 days.

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

BHP Group Limited  vs.  Anglo American PLC

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. Despite nearly weak essential indicators, BHP Group may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Anglo American PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Anglo American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BHP Group and Anglo American

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

The idea behind BHP Group Limited and Anglo American PLC 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.