Correlation Between Peninsula Energy and BHP Group

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

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

Diversification Opportunities for Peninsula Energy and BHP Group

0.59

Correlation Coefficient

Peninsula Energy  BHP Group

Very weak diversification

The 3 months correlation between Peninsula and BHP is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Peninsula Energy Limited 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 Peninsula Energy 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 Peninsula Energy Limited 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 Peninsula Energy i.e., Peninsula Energy and BHP Group go up and down completely randomly.

Pair Corralation between Peninsula Energy and BHP Group

Assuming the 90 days horizon Peninsula Energy Limited is expected to under-perform the BHP Group. In addition to that, Peninsula Energy is 3.73 times more volatile than BHP Group Limited. It trades about -0.02 of its total potential returns per unit of risk. BHP Group Limited is currently generating about 0.03 per unit of volatility. If you would invest  2,400  in BHP Group Limited on September 16, 2024 and sell it today you would earn a total of  66.00  from holding BHP Group Limited or generate 2.75% return on investment over 90 days.

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

Peninsula Energy Limited  vs.  BHP Group Limited

Peninsula Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Peninsula Energy Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

BHP Group Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BHP Group is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Peninsula Energy and BHP Group

The main advantage of trading using opposite Peninsula Energy and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Peninsula Energy 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 Peninsula Energy Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.