Correlation Between ANGLO AMERICAN and BHP Group

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

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

Diversification Opportunities for ANGLO AMERICAN and BHP Group

0.12

Correlation Coefficient

ANGLO AMERICAN  BHP Group

Average diversification

The 3 months correlation between ANGLO and BHP is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding ANGLO AMERICAN SPADR 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 ANGLO AMERICAN 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 ANGLO AMERICAN SPADR 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 ANGLO AMERICAN i.e., ANGLO AMERICAN and BHP Group go up and down completely randomly.

Pair Corralation between ANGLO AMERICAN and BHP Group

Assuming the 90 days trading horizon ANGLO AMERICAN SPADR is expected to generate 1.92 times more return on investment than BHP Group. However, ANGLO AMERICAN is 1.92 times more volatile than BHP Group Limited. It trades about 0.0 of its potential returns per unit of risk. BHP Group Limited is currently generating about -0.03 per unit of risk. If you would invest  1,415  in ANGLO AMERICAN SPADR on September 23, 2024 and sell it today you would lose (65.00) from holding ANGLO AMERICAN SPADR or give up 4.59% of portfolio value over 90 days.

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

ANGLO AMERICAN SPADR  vs.  BHP Group Limited

ANGLO AMERICAN SPADR

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ANGLO AMERICAN SPADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, ANGLO AMERICAN may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 ANGLO AMERICAN and BHP Group

The main advantage of trading using opposite ANGLO AMERICAN and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ANGLO AMERICAN 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 ANGLO AMERICAN SPADR 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.