Correlation Between NioCorp Developments and BHP Group

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

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

Diversification Opportunities for NioCorp Developments and BHP Group

0.51

Correlation Coefficient

NioCorp Developments  BHP Group

Very weak diversification

The 3 months correlation between NioCorp and BHP is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding NioCorp Developments Ltd 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 NioCorp Developments 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 NioCorp Developments Ltd 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 NioCorp Developments i.e., NioCorp Developments and BHP Group go up and down completely randomly.

Pair Corralation between NioCorp Developments and BHP Group

Allowing for the 90-day total investment horizon NioCorp Developments Ltd is expected to generate 4.53 times more return on investment than BHP Group. However, NioCorp Developments is 4.53 times more volatile than BHP Group Limited. It trades about 0.16 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.04 per unit of risk. If you would invest  147.00  in NioCorp Developments Ltd on December 26, 2024 and sell it today you would earn a total of  83.00  from holding NioCorp Developments Ltd or generate 56.46% return on investment over 90 days.

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

NioCorp Developments Ltd  vs.  BHP Group Limited

NioCorp Developments

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NioCorp Developments Ltd are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, NioCorp Developments sustained solid returns over the last few months and may actually be approaching a breakup point.

BHP Group Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 3 (%) 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 NioCorp Developments and BHP Group

The main advantage of trading using opposite NioCorp Developments and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NioCorp Developments 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 NioCorp Developments Ltd 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.