Correlation Between BHP Group and Cabot

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

Diversification Opportunities for BHP Group and Cabot

-0.33

Correlation Coefficient

BHP Group  Cabot

Very good diversification

The 3 months correlation between BHP and Cabot is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Cabot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cabot 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 Cabot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cabot has no effect on the direction of BHP Group i.e., BHP Group and Cabot go up and down completely randomly.

Pair Corralation between BHP Group and Cabot

Considering the 90-day investment horizon BHP Group is expected to generate 1.28 times less return on investment than Cabot. In addition to that, BHP Group is 1.03 times more volatile than Cabot. It trades about 0.09 of its total potential returns per unit of risk. Cabot is currently generating about 0.12 per unit of volatility. If you would invest  8,952  in Cabot on January 23, 2024 and sell it today you would earn a total of  320.00  from holding Cabot or generate 3.57% return on investment over 90 days.

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

BHP Group Limited  vs.  Cabot

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.

Cabot

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cabot are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental drivers, Cabot unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and Cabot

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

The idea behind BHP Group Limited and Cabot 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.