Correlation Between Silver Spruce and BHP Group

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Can any of the company-specific risk be diversified away by investing in both Silver Spruce 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 Silver Spruce and BHP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Silver Spruce Resources and BHP Group Limited, you can compare the effects of market volatilities on Silver Spruce 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 Silver Spruce with a short position of BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Silver Spruce and BHP Group.

Diversification Opportunities for Silver Spruce and BHP Group

0.27
  Correlation Coefficient

Modest diversification

The 3 months correlation between Silver and BHP is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Silver Spruce Resources 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 Silver Spruce 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 Silver Spruce Resources 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 Silver Spruce i.e., Silver Spruce and BHP Group go up and down completely randomly.

Pair Corralation between Silver Spruce and BHP Group

Assuming the 90 days horizon Silver Spruce Resources is expected to generate 6.09 times more return on investment than BHP Group. However, Silver Spruce is 6.09 times more volatile than BHP Group Limited. It trades about 0.24 of its potential returns per unit of risk. BHP Group Limited is currently generating about 0.09 per unit of risk. If you would invest  0.92  in Silver Spruce Resources on December 29, 2023 and sell it today you would earn a total of  0.38  from holding Silver Spruce Resources or generate 41.3% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Silver Spruce Resources  vs.  BHP Group Limited

 Performance 
       Timeline  
Silver Spruce Resources 

Risk-Adjusted Performance

2 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Silver Spruce Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal fundamental drivers, Silver Spruce reported solid returns over the last few months and may actually be approaching a breakup point.
BHP Group Limited 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
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 conflicting performance in the last few months, the Stock's technical indicators remain relatively invariable which may send shares a bit higher in April 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Silver Spruce and BHP Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Silver Spruce and BHP Group

The main advantage of trading using opposite Silver Spruce and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Silver Spruce 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 Silver Spruce Resources 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.

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