Correlation Between Erin Ventures and BHP Group

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

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

Diversification Opportunities for Erin Ventures and BHP Group

0.44

Correlation Coefficient

Erin Ventures  BHP Group

Very weak diversification

The 3 months correlation between Erin and BHP is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Erin Ventures and BHP Group Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BHP Group Limited and Erin Ventures 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 Erin Ventures are associated (or correlated) with BHP Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BHP Group Limited has no effect on the direction of Erin Ventures i.e., Erin Ventures and BHP Group go up and down completely randomly.

Pair Corralation between Erin Ventures and BHP Group

Assuming the 90 days horizon Erin Ventures is expected to generate 2.9 times more return on investment than BHP Group. However, Erin Ventures is 2.9 times more volatile than BHP Group Limited. It trades about 0.12 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.02 per unit of risk. If you would invest  5.10  in Erin Ventures on January 20, 2024 and sell it today you would earn a total of  0.56  from holding Erin Ventures or generate 10.98% return on investment over 90 days.

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

Erin Ventures  vs.  BHP Group Limited

Erin Ventures

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Erin Ventures has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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.

Pair Trading with Erin Ventures and BHP Group

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

The idea behind Erin Ventures and BHP Group Limited 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.