Correlation Between Sovereign Metals and BHP Group

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

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

Diversification Opportunities for Sovereign Metals and BHP Group

-0.43

Correlation Coefficient

Sovereign Metals  BHP Group

Very good diversification

The 3 months correlation between Sovereign and BHP is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Sovereign Metals 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 Sovereign Metals 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 Sovereign Metals 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 Sovereign Metals i.e., Sovereign Metals and BHP Group go up and down completely randomly.

Pair Corralation between Sovereign Metals and BHP Group

Assuming the 90 days horizon Sovereign Metals Limited is expected to under-perform the BHP Group. In addition to that, Sovereign Metals is 1.97 times more volatile than BHP Group Limited. It trades about -0.08 of its total potential returns per unit of risk. BHP Group Limited is currently generating about -0.09 per unit of volatility. If you would invest  2,450  in BHP Group Limited on September 22, 2024 and sell it today you would lose (82.00) from holding BHP Group Limited or give up 3.35% of portfolio value over 90 days.

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

Sovereign Metals Limited  vs.  BHP Group Limited

Sovereign Metals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sovereign Metals Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sovereign Metals reported solid returns over the last few months and may actually be approaching a breakup point.

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. Despite nearly stable basic indicators, BHP Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sovereign Metals and BHP Group

The main advantage of trading using opposite Sovereign Metals and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sovereign Metals 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 Sovereign Metals 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.