Correlation Between BHP and Visa

Can any of the company-specific risk be diversified away by investing in both BHP and Visa 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 and Visa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BHP Group and Visa Inc, you can compare the effects of market volatilities on BHP and Visa 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 with a short position of Visa. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP and Visa.

Diversification Opportunities for BHP and Visa

0.09

Correlation Coefficient

BHP  Visa

Significant diversification

The 3 months correlation between BHP and Visa is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group and Visa Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Visa Inc and BHP 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 are associated (or correlated) with Visa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Visa Inc has no effect on the direction of BHP i.e., BHP and Visa go up and down completely randomly.

Pair Corralation between BHP and Visa

Assuming the 90 days trading horizon BHP is expected to generate 1.92 times less return on investment than Visa. In addition to that, BHP is 1.15 times more volatile than Visa Inc. It trades about 0.05 of its total potential returns per unit of risk. Visa Inc is currently generating about 0.11 per unit of volatility. If you would invest  440,517  in Visa Inc on September 28, 2024 and sell it today you would earn a total of  207,631  from holding Visa Inc or generate 47.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.63%
Values	Daily Returns

BHP Group  vs.  Visa Inc

BHP Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHP Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, BHP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Visa Inc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Inc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP and Visa

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

The idea behind BHP Group and Visa Inc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.