Correlation Between Toyota Tsusho and BlueScope Steel

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

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

Diversification Opportunities for Toyota Tsusho and BlueScope Steel

0.07

Correlation Coefficient

Toyota Tsusho  BlueScope Steel

Significant diversification

The 3 months correlation between Toyota and BlueScope is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Toyota Tsusho and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Toyota Tsusho 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 Toyota Tsusho 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 Toyota Tsusho i.e., Toyota Tsusho and BlueScope Steel go up and down completely randomly.

Pair Corralation between Toyota Tsusho and BlueScope Steel

Assuming the 90 days horizon Toyota Tsusho is expected to under-perform the BlueScope Steel. But the stock apears to be less risky and, when comparing its historical volatility, Toyota Tsusho is 1.28 times less risky than BlueScope Steel. The stock trades about -0.05 of its potential returns per unit of risk. The BlueScope Steel Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,219  in BlueScope Steel Limited on August 31, 2024 and sell it today you would earn a total of  121.00  from holding BlueScope Steel Limited or generate 9.93% return on investment over 90 days.

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

Toyota Tsusho  vs.  BlueScope Steel Limited

Toyota Tsusho

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toyota Tsusho has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Toyota Tsusho is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

BlueScope Steel

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BlueScope Steel Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BlueScope Steel may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Toyota Tsusho and BlueScope Steel

The main advantage of trading using opposite Toyota Tsusho and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toyota Tsusho 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 Toyota Tsusho 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.