Correlation Between BHP and Vista Oil

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

By analyzing existing cross correlation between BHP Group and Vista Oil Gas, you can compare the effects of market volatilities on BHP and Vista Oil 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 Vista Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP and Vista Oil.

Diversification Opportunities for BHP and Vista Oil

0.06

Correlation Coefficient

BHP  Vista Oil

Significant diversification

The 3 months correlation between BHP and Vista is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group and Vista Oil Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vista Oil Gas 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 Vista Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vista Oil Gas has no effect on the direction of BHP i.e., BHP and Vista Oil go up and down completely randomly.

Pair Corralation between BHP and Vista Oil

Assuming the 90 days trading horizon BHP is expected to generate 4.24 times less return on investment than Vista Oil. But when comparing it to its historical volatility, BHP Group is 2.06 times less risky than Vista Oil. It trades about 0.05 of its potential returns per unit of risk. Vista Oil Gas is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  50,000  in Vista Oil Gas on September 28, 2024 and sell it today you would earn a total of  58,200  from holding Vista Oil Gas or generate 116.4% 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.  Vista Oil Gas

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.

Vista Oil Gas

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vista Oil Gas are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Vista Oil sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP and Vista Oil

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

The idea behind BHP Group and Vista Oil Gas 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.