Correlation Between BHP and Cleveland Cliffs

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

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

Diversification Opportunities for BHP and Cleveland Cliffs

-0.21

Correlation Coefficient

BHP  Cleveland Cliffs

Very good diversification

The 3 months correlation between BHP and Cleveland is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding BHP Group and Cleveland Cliffs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cleveland Cliffs and BHP 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 are associated (or correlated) with Cleveland Cliffs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cleveland Cliffs has no effect on the direction of BHP i.e., BHP and Cleveland Cliffs go up and down completely randomly.

Pair Corralation between BHP and Cleveland Cliffs

Assuming the 90 days trading horizon BHP Group is expected to under-perform the Cleveland Cliffs. But the stock apears to be less risky and, when comparing its historical volatility, BHP Group is 6.92 times less risky than Cleveland Cliffs. The stock trades about -0.09 of its potential returns per unit of risk. The Cleveland Cliffs is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  15,441  in Cleveland Cliffs on April 25, 2025 and sell it today you would earn a total of  4,559  from holding Cleveland Cliffs or generate 29.53% return on investment over 90 days.

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

BHP Group  vs.  Cleveland Cliffs

BHP Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days BHP Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, BHP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Cleveland Cliffs

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cleveland Cliffs are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Cleveland Cliffs showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BHP and Cleveland Cliffs

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

The idea behind BHP Group and Cleveland Cliffs 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.