Correlation Between BHP Group and Glencore PLC
Can any of the company-specific risk be diversified away by investing in both BHP Group and Glencore PLC 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 Glencore PLC 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 Glencore PLC, you can compare the effects of market volatilities on BHP Group and Glencore PLC 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 Glencore PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of BHP Group and Glencore PLC.
Diversification Opportunities for BHP Group and Glencore PLC
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between BHP and Glencore is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Glencore PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Glencore PLC 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 Glencore PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Glencore PLC has no effect on the direction of BHP Group i.e., BHP Group and Glencore PLC go up and down completely randomly.
Pair Corralation between BHP Group and Glencore PLC
Considering the 90-day investment horizon BHP Group is expected to generate 6.36 times less return on investment than Glencore PLC. But when comparing it to its historical volatility, BHP Group Limited is 1.01 times less risky than Glencore PLC. It trades about 0.02 of its potential returns per unit of risk. Glencore PLC is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 527.00 in Glencore PLC on March 14, 2024 and sell it today you would earn a total of 72.00 from holding Glencore PLC or generate 13.66% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
BHP Group Limited vs. Glencore PLC
Performance |
Timeline |
BHP Group Limited |
Glencore PLC |
BHP Group and Glencore PLC Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with BHP Group and Glencore PLC
The main advantage of trading using opposite BHP Group and Glencore PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BHP Group position performs unexpectedly, Glencore PLC 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 Glencore PLC will offset losses from the drop in Glencore PLC's long position.The idea behind BHP Group Limited and Glencore PLC 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.Glencore PLC vs. Northern Graphite | Glencore PLC vs. Focus Graphite | Glencore PLC vs. Altura Mining Limited | Glencore PLC vs. Vulcan Minerals |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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