Correlation Between United States and BHP Group

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

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

Diversification Opportunities for United States and BHP Group

0.63

Correlation Coefficient

United States  BHP Group

Poor diversification

The 3 months correlation between United and BHP is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel 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 United States 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 United States Steel 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 United States i.e., United States and BHP Group go up and down completely randomly.

Pair Corralation between United States and BHP Group

Given the investment horizon of 90 days United States Steel is expected to generate 1.33 times more return on investment than BHP Group. However, United States is 1.33 times more volatile than BHP Group Limited. It trades about 0.31 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.07 per unit of risk. If you would invest  1,220,000  in United States Steel on October 24, 2024 and sell it today you would earn a total of  230,000  from holding United States Steel or generate 18.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

United States Steel  vs.  BHP Group Limited

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, United States is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 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.

Pair Trading with United States and BHP Group

The main advantage of trading using opposite United States and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.