Correlation Between BHP Group and Western Copper

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

Diversification Opportunities for BHP Group and Western Copper

0.34

Correlation Coefficient

BHP Group  Western Copper

Weak diversification

The 3 months correlation between BHP and Western is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group Limited and Western Copper and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Copper 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 Western Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Copper has no effect on the direction of BHP Group i.e., BHP Group and Western Copper go up and down completely randomly.

Pair Corralation between BHP Group and Western Copper

Assuming the 90 days trading horizon BHP Group Limited is expected to under-perform the Western Copper. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group Limited is 2.92 times less risky than Western Copper. The stock trades about -0.06 of its potential returns per unit of risk. The Western Copper and is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  96.00  in Western Copper and on September 5, 2024 and sell it today you would earn a total of  6.00  from holding Western Copper and or generate 6.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

BHP Group Limited  vs.  Western Copper and

BHP Group Limited

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BHP Group Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, BHP Group may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Western Copper

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Copper and are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Western Copper is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BHP Group and Western Copper

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

The idea behind BHP Group Limited and Western Copper and 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.