Correlation Between Sasol and BHP Group

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

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

Diversification Opportunities for Sasol and BHP Group

0.06

Correlation Coefficient

Sasol  BHP Group

Significant diversification

The 3 months correlation between Sasol and BHP is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Sasol Ltd Bee 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 Sasol 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 Sasol Ltd Bee 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 Sasol i.e., Sasol and BHP Group go up and down completely randomly.

Pair Corralation between Sasol and BHP Group

Assuming the 90 days trading horizon Sasol Ltd Bee is expected to generate 6.16 times more return on investment than BHP Group. However, Sasol is 6.16 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  420,000  in Sasol Ltd Bee on December 29, 2024 and sell it today you would earn a total of  85,000  from holding Sasol Ltd Bee or generate 20.24% return on investment over 90 days.

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

Sasol Ltd Bee  vs.  BHP Group Limited

Sasol Ltd Bee

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sasol Ltd Bee are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Sasol sustained solid returns over the last few months and may actually be approaching a breakup point.

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. 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 Sasol and BHP Group

The main advantage of trading using opposite Sasol and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sasol 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 Sasol Ltd Bee 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.