Correlation Between BHP Group and Pampa Metals

Can any of the company-specific risk be diversified away by investing in both BHP Group and Pampa Metals 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 Pampa Metals 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 Pampa Metals, you can compare the effects of market volatilities on BHP Group and Pampa Metals 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 Pampa Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Pampa Metals.

Diversification Opportunities for BHP Group and Pampa Metals

-0.54

Correlation Coefficient

BHP Group  Pampa Metals

Excellent diversification

The 3 months correlation between BHP and Pampa is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Pampa Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pampa Metals 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 Pampa Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pampa Metals has no effect on the direction of BHP Group i.e., BHP Group and Pampa Metals go up and down completely randomly.

Pair Corralation between BHP Group and Pampa Metals

Considering the 90-day investment horizon BHP Group Limited is expected to under-perform the Pampa Metals. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 2.57 times less risky than Pampa Metals. The stock trades about -0.25 of its potential returns per unit of risk. The Pampa Metals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  15.00  in Pampa Metals on August 27, 2024 and sell it today you would earn a total of  0.00  from holding Pampa Metals or generate 0.0% return on investment over 90 days.

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

BHP Group Limited  vs.  Pampa Metals

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. 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.

Pampa Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Pampa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Pampa Metals is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BHP Group and Pampa Metals

The main advantage of trading using opposite BHP Group and Pampa Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Pampa Metals 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 Pampa Metals will offset losses from the drop in Pampa Metals' long position.

The idea behind BHP Group Limited and Pampa Metals 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.