Correlation Between BHP Group and EMX Royalty

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

Diversification Opportunities for BHP Group and EMX Royalty

-0.02

Correlation Coefficient

BHP Group  EMX Royalty

Good diversification

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

Pair Corralation between BHP Group and EMX Royalty

Considering the 90-day investment horizon BHP Group Limited is expected to under-perform the EMX Royalty. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 2.0 times less risky than EMX Royalty. The stock trades about -0.02 of its potential returns per unit of risk. The EMX Royalty Corp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  151.00  in EMX Royalty Corp on January 26, 2024 and sell it today you would earn a total of  39.00  from holding EMX Royalty Corp or generate 25.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

BHP Group Limited  vs.  EMX Royalty Corp

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.

EMX Royalty Corp

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EMX Royalty Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady primary indicators, EMX Royalty showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP Group and EMX Royalty

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

The idea behind BHP Group Limited and EMX Royalty Corp 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.