Correlation Between MP Materials and BHP Group
Can any of the company-specific risk be diversified away by investing in both MP Materials 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 MP Materials and BHP Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MP Materials Corp and BHP Group Limited, you can compare the effects of market volatilities on MP Materials 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 MP Materials with a short position of BHP Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of MP Materials and BHP Group.
Diversification Opportunities for MP Materials and BHP Group
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between MP Materials and BHP is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding MP Materials Corp 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 MP Materials 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 MP Materials Corp 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 MP Materials i.e., MP Materials and BHP Group go up and down completely randomly.
Pair Corralation between MP Materials and BHP Group
Allowing for the 90-day total investment horizon MP Materials Corp is expected to under-perform the BHP Group. In addition to that, MP Materials is 2.3 times more volatile than BHP Group Limited. It trades about -0.04 of its total potential returns per unit of risk. BHP Group Limited is currently generating about 0.07 per unit of volatility. If you would invest 5,686 in BHP Group Limited on March 7, 2024 and sell it today you would earn a total of 121.00 from holding BHP Group Limited or generate 2.13% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
MP Materials Corp vs. BHP Group Limited
Performance |
Timeline |
MP Materials Corp |
BHP Group Limited |
MP Materials and BHP Group Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with MP Materials and BHP Group
The main advantage of trading using opposite MP Materials and BHP Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MP Materials 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.MP Materials vs. NioCorp Developments Ltd | MP Materials vs. Procter Gamble | MP Materials vs. The Boeing | MP Materials vs. American Express |
BHP Group vs. NioCorp Developments Ltd | BHP Group vs. Procter Gamble | BHP Group vs. The Boeing | BHP Group vs. American Express |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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