Correlation Between BHP and Western Metals

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

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

Diversification Opportunities for BHP and Western Metals

0.0

Correlation Coefficient

BHP  Western Metals

Pay attention - limited upside

The 3 months correlation between BHP and Western is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group and Western Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Metals and BHP 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 are associated (or correlated) with Western Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Metals has no effect on the direction of BHP i.e., BHP and Western Metals go up and down completely randomly.

Pair Corralation between BHP and Western Metals

If you would invest  38.00  in Western Metals on February 2, 2024 and sell it today you would earn a total of  0.00  from holding Western Metals or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

BHP Group  vs.  Western Metals

BHP Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BHP Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, BHP is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Western Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Western Metals is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BHP and Western Metals

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

The idea behind BHP Group and Western 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.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.