Correlation Between BHP Group and Lithium Americas

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Can any of the company-specific risk be diversified away by investing in both BHP Group and Lithium Americas 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 BHP Group and Lithium Americas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BHP Group Limited and Lithium Americas Corp, you can compare the effects of market volatilities on BHP Group and Lithium Americas 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 BHP Group with a short position of Lithium Americas. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Lithium Americas.

Diversification Opportunities for BHP Group and Lithium Americas

0.39
  Correlation Coefficient

Weak diversification

The 3 months correlation between BHP and Lithium is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Lithium Americas Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lithium Americas Corp and BHP Group 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 BHP Group Limited are associated (or correlated) with Lithium Americas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lithium Americas Corp has no effect on the direction of BHP Group i.e., BHP Group and Lithium Americas go up and down completely randomly.

Pair Corralation between BHP Group and Lithium Americas

Considering the 90-day investment horizon BHP Group is expected to generate 7.45 times less return on investment than Lithium Americas. But when comparing it to its historical volatility, BHP Group Limited is 3.3 times less risky than Lithium Americas. It trades about 0.09 of its potential returns per unit of risk. Lithium Americas Corp is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  223.00  in Lithium Americas Corp on August 7, 2024 and sell it today you would earn a total of  197.00  from holding Lithium Americas Corp or generate 88.34% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

BHP Group Limited  vs.  Lithium Americas Corp

 Performance 
       Timeline  
BHP Group Limited 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical indicators, BHP Group may actually be approaching a critical reversion point that can send shares even higher in December 2024.
Lithium Americas Corp 

Risk-Adjusted Performance

15 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Lithium Americas Corp are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Lithium Americas exhibited solid returns over the last few months and may actually be approaching a breakup point.

BHP Group and Lithium Americas Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BHP Group and Lithium Americas

The main advantage of trading using opposite BHP Group and Lithium Americas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Lithium Americas 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 Lithium Americas will offset losses from the drop in Lithium Americas' long position.
The idea behind BHP Group Limited and Lithium Americas Corp 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.
Check out your portfolio center.
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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