Correlation Between BHP Group and Dow

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

Diversification Opportunities for BHP Group and Dow

-0.27

Correlation Coefficient

BHP Group  Dow

Very good diversification

The 3 months correlation between BHP and Dow is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Dow Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Inc 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 Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Inc has no effect on the direction of BHP Group i.e., BHP Group and Dow go up and down completely randomly.

Pair Corralation between BHP Group and Dow

Considering the 90-day investment horizon BHP Group Limited is expected to generate 1.74 times more return on investment than Dow. However, BHP Group is 1.74 times more volatile than Dow Inc. It trades about 0.15 of its potential returns per unit of risk. Dow Inc is currently generating about 0.0 per unit of risk. If you would invest  5,655  in BHP Group Limited on January 26, 2024 and sell it today you would earn a total of  269.00  from holding BHP Group Limited or generate 4.76% 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.  Dow Inc

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.

Dow Inc

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dow Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Dow may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with BHP Group and Dow

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

The idea behind BHP Group Limited and Dow Inc 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.