Correlation Between Reinet Investments and BHP Group

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

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

Diversification Opportunities for Reinet Investments and BHP Group

0.1

Correlation Coefficient

Reinet Investments  BHP Group

Average diversification

The 3 months correlation between Reinet and BHP is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Reinet Investments SCA 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 Reinet Investments 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 Reinet Investments SCA 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 Reinet Investments i.e., Reinet Investments and BHP Group go up and down completely randomly.

Pair Corralation between Reinet Investments and BHP Group

Assuming the 90 days trading horizon Reinet Investments SCA is expected to under-perform the BHP Group. But the stock apears to be less risky and, when comparing its historical volatility, Reinet Investments SCA is 1.11 times less risky than BHP Group. The stock trades about -0.34 of its potential returns per unit of risk. The BHP Group Limited is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  4,776,000  in BHP Group Limited on October 1, 2024 and sell it today you would lose (176,000) from holding BHP Group Limited or give up 3.69% of portfolio value over 90 days.

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

Reinet Investments SCA  vs.  BHP Group Limited

Reinet Investments SCA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Reinet Investments SCA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Reinet Investments is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Reinet Investments and BHP Group

The main advantage of trading using opposite Reinet Investments and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reinet Investments 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 Reinet Investments SCA 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.