Correlation Between Eramet SA and BHP Group

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

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

Diversification Opportunities for Eramet SA and BHP Group

-0.02

Correlation Coefficient

Eramet SA  BHP Group

Good diversification

The 3 months correlation between Eramet and BHP is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Eramet SA ADR 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 Eramet SA 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 Eramet SA ADR 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 Eramet SA i.e., Eramet SA and BHP Group go up and down completely randomly.

Pair Corralation between Eramet SA and BHP Group

Assuming the 90 days horizon Eramet SA is expected to generate 1.97 times less return on investment than BHP Group. But when comparing it to its historical volatility, Eramet SA ADR is 1.55 times less risky than BHP Group. It trades about 0.01 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,430  in BHP Group Limited on December 2, 2024 and sell it today you would lose (3.00) from holding BHP Group Limited or give up 0.12% of portfolio value over 90 days.

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

Eramet SA ADR  vs.  BHP Group Limited

Eramet SA ADR

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eramet SA ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Eramet SA showed solid returns over the last few months and may actually be approaching a breakup point.

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. 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.

Pair Trading with Eramet SA and BHP Group

The main advantage of trading using opposite Eramet SA and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eramet SA 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 Eramet SA ADR 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..