Correlation Between Sumitomo Metal and BHP Group

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

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

Diversification Opportunities for Sumitomo Metal and BHP Group

0.57

Correlation Coefficient

Sumitomo Metal  BHP Group

Very weak diversification

The 3 months correlation between Sumitomo and BHP is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Sumitomo Metal Mining 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 Sumitomo Metal 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 Sumitomo Metal Mining 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 Sumitomo Metal i.e., Sumitomo Metal and BHP Group go up and down completely randomly.

Pair Corralation between Sumitomo Metal and BHP Group

Assuming the 90 days horizon Sumitomo Metal Mining is expected to under-perform the BHP Group. But the pink sheet apears to be less risky and, when comparing its historical volatility, Sumitomo Metal Mining is 1.8 times less risky than BHP Group. The pink sheet trades about -0.1 of its potential returns per unit of risk. The BHP Group Limited is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  2,729  in BHP Group Limited on December 2, 2024 and sell it today you would lose (302.00) from holding BHP Group Limited or give up 11.07% of portfolio value over 90 days.

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

Sumitomo Metal Mining  vs.  BHP Group Limited

Sumitomo Metal Mining

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sumitomo Metal Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 Sumitomo Metal and BHP Group

The main advantage of trading using opposite Sumitomo Metal and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sumitomo Metal 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 Sumitomo Metal Mining 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..