Correlation Between Capitec Bank and BHP Group

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

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

Diversification Opportunities for Capitec Bank and BHP Group

0.12

Correlation Coefficient

Capitec Bank  BHP Group

Average diversification

The 3 months correlation between Capitec and BHP is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Capitec Bank Holdings and BHP Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group Limited and Capitec Bank 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 Capitec Bank Holdings are associated (or correlated) with BHP Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group Limited has no effect on the direction of Capitec Bank i.e., Capitec Bank and BHP Group go up and down completely randomly.

Pair Corralation between Capitec Bank and BHP Group

Assuming the 90 days trading horizon Capitec Bank is expected to generate 1.6 times less return on investment than BHP Group. In addition to that, Capitec Bank is 1.05 times more volatile than BHP Group Limited. It trades about 0.01 of its total potential returns per unit of risk. BHP Group Limited is currently generating about 0.01 per unit of volatility. If you would invest  4,489,865  in BHP Group Limited on December 29, 2024 and sell it today you would earn a total of  11,135  from holding BHP Group Limited or generate 0.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Capitec Bank Holdings  vs.  BHP Group Limited

Capitec Bank Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capitec Bank Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Capitec Bank is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

BHP Group Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days BHP Group Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, BHP Group is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Capitec Bank and BHP Group

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

The idea behind Capitec Bank Holdings and BHP Group Limited 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.