Correlation Between Teck Resources and BHP Group

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

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

Diversification Opportunities for Teck Resources and BHP Group

0.38

Correlation Coefficient

Teck Resources  BHP Group

Weak diversification

The 3 months correlation between Teck and BHP is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Teck Resources Ltd 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 Teck Resources 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 Teck Resources Ltd 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 Teck Resources i.e., Teck Resources and BHP Group go up and down completely randomly.

Pair Corralation between Teck Resources and BHP Group

Given the investment horizon of 90 days Teck Resources Ltd is expected to under-perform the BHP Group. In addition to that, Teck Resources is 1.92 times more volatile than BHP Group Limited. It trades about 0.0 of its total potential returns per unit of risk. BHP Group Limited is currently generating about 0.04 per unit of volatility. If you would invest  4,838  in BHP Group Limited on December 26, 2024 and sell it today you would earn a total of  144.00  from holding BHP Group Limited or generate 2.98% return on investment over 90 days.

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

Teck Resources Ltd  vs.  BHP Group Limited

Teck Resources

Risk-Adjusted Performance

Insignificant

Over the last 90 days Teck Resources Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Teck Resources is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

BHP Group Limited

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, BHP Group is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Teck Resources and BHP Group

The main advantage of trading using opposite Teck Resources and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Teck Resources 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 Teck Resources Ltd 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.