Correlation Between Europa Metals and BHP Group

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

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

Diversification Opportunities for Europa Metals and BHP Group

0.37

Correlation Coefficient

Europa Metals  BHP Group

Weak diversification

The 3 months correlation between Europa and BHP is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Europa Metals 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 Europa Metals 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 Europa Metals 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 Europa Metals i.e., Europa Metals and BHP Group go up and down completely randomly.

Pair Corralation between Europa Metals and BHP Group

Assuming the 90 days trading horizon Europa Metals is expected to generate 7.36 times more return on investment than BHP Group. However, Europa Metals is 7.36 times more volatile than BHP Group Limited. It trades about 0.07 of its potential returns per unit of risk. BHP Group Limited is currently generating about -0.01 per unit of risk. If you would invest  5,000  in Europa Metals on September 15, 2024 and sell it today you would earn a total of  400.00  from holding Europa Metals or generate 8.0% return on investment over 90 days.

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

Europa Metals  vs.  BHP Group Limited

Europa Metals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Europa Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Europa Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

BHP Group Limited

Risk-Adjusted Performance

0 of 100

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 Europa Metals and BHP Group

The main advantage of trading using opposite Europa Metals and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Europa Metals 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 Europa Metals 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.