Correlation Between Electra Battery and BHP Group

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

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

Diversification Opportunities for Electra Battery and BHP Group

0.46

Correlation Coefficient

Electra Battery  BHP Group

Very weak diversification

The 3 months correlation between Electra and BHP is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Electra Battery Materials 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 Electra Battery 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 Electra Battery Materials 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 Electra Battery i.e., Electra Battery and BHP Group go up and down completely randomly.

Pair Corralation between Electra Battery and BHP Group

Given the investment horizon of 90 days Electra Battery Materials is expected to under-perform the BHP Group. In addition to that, Electra Battery is 2.19 times more volatile than BHP Group Limited. It trades about -0.23 of its total potential returns per unit of risk. BHP Group Limited is currently generating about -0.17 per unit of volatility. If you would invest  5,943  in BHP Group Limited on September 13, 2024 and sell it today you would lose (699.50) from holding BHP Group Limited or give up 11.77% of portfolio value over 90 days.

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

Electra Battery Materials  vs.  BHP Group Limited

Electra Battery Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Electra Battery Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental drivers remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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. Even with relatively invariable technical indicators, BHP Group is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Electra Battery and BHP Group

The main advantage of trading using opposite Electra Battery and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electra Battery 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 Electra Battery Materials 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.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.