Correlation Between BHP Group and Compass Minerals

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

Diversification Opportunities for BHP Group and Compass Minerals

-0.02

Correlation Coefficient

BHP Group  Compass Minerals

Good diversification

The 3 months correlation between BHP and Compass is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Compass Minerals International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compass Minerals Int 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 Compass Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compass Minerals Int has no effect on the direction of BHP Group i.e., BHP Group and Compass Minerals go up and down completely randomly.

Pair Corralation between BHP Group and Compass Minerals

Considering the 90-day investment horizon BHP Group Limited is expected to generate 0.37 times more return on investment than Compass Minerals. However, BHP Group Limited is 2.72 times less risky than Compass Minerals. It trades about 0.1 of its potential returns per unit of risk. Compass Minerals International is currently generating about -0.09 per unit of risk. If you would invest  5,696  in BHP Group Limited on January 25, 2024 and sell it today you would earn a total of  174.00  from holding BHP Group Limited or generate 3.05% 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.  Compass Minerals International

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.

Compass Minerals Int

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compass Minerals International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's primary indicators remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with BHP Group and Compass Minerals

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

The idea behind BHP Group Limited and Compass Minerals International 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.