Correlation Between BHP Group and Neometals

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

Diversification Opportunities for BHP Group and Neometals

0.34

Correlation Coefficient

BHP Group  Neometals

Weak diversification

The 3 months correlation between BHP and Neometals is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Neometals Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neometals 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 Neometals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neometals ADR has no effect on the direction of BHP Group i.e., BHP Group and Neometals go up and down completely randomly.

Pair Corralation between BHP Group and Neometals

Assuming the 90 days horizon BHP Group Limited is expected to generate 0.58 times more return on investment than Neometals. However, BHP Group Limited is 1.72 times less risky than Neometals. It trades about 0.01 of its potential returns per unit of risk. Neometals Ltd ADR is currently generating about -0.08 per unit of risk. If you would invest  2,839  in BHP Group Limited on October 9, 2024 and sell it today you would lose (211.00) from holding BHP Group Limited or give up 7.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	75.0%
Values	Daily Returns

BHP Group Limited  vs.  Neometals Ltd 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 latest weak performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Neometals ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Neometals Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Neometals 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 Neometals

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

The idea behind BHP Group Limited and Neometals Ltd 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.