Correlation Between KRAKATAU STEEL and BlueScope Steel

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

By analyzing existing cross correlation between KRAKATAU STEEL B and BlueScope Steel Limited, you can compare the effects of market volatilities on KRAKATAU STEEL and BlueScope Steel 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 KRAKATAU STEEL with a short position of BlueScope Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of KRAKATAU STEEL and BlueScope Steel.

Diversification Opportunities for KRAKATAU STEEL and BlueScope Steel

0.8

Correlation Coefficient

KRAKATAU STEEL  BlueScope Steel

Very poor diversification

The 3 months correlation between KRAKATAU and BlueScope is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding KRAKATAU STEEL B and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and KRAKATAU STEEL 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 KRAKATAU STEEL B are associated (or correlated) with BlueScope Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlueScope Steel has no effect on the direction of KRAKATAU STEEL i.e., KRAKATAU STEEL and BlueScope Steel go up and down completely randomly.

Pair Corralation between KRAKATAU STEEL and BlueScope Steel

Assuming the 90 days trading horizon KRAKATAU STEEL is expected to generate 1.32 times less return on investment than BlueScope Steel. In addition to that, KRAKATAU STEEL is 1.02 times more volatile than BlueScope Steel Limited. It trades about 0.08 of its total potential returns per unit of risk. BlueScope Steel Limited is currently generating about 0.11 per unit of volatility. If you would invest  1,116  in BlueScope Steel Limited on December 30, 2024 and sell it today you would earn a total of  184.00  from holding BlueScope Steel Limited or generate 16.49% return on investment over 90 days.

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

KRAKATAU STEEL B   vs.  BlueScope Steel Limited

KRAKATAU STEEL B

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward-looking signals, KRAKATAU STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

BlueScope Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BlueScope Steel Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, BlueScope Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KRAKATAU STEEL and BlueScope Steel

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

The idea behind KRAKATAU STEEL B and BlueScope Steel 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.