Correlation Between ARISTOCRAT LEISURE and BLUESCOPE STEEL

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

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

Diversification Opportunities for ARISTOCRAT LEISURE and BLUESCOPE STEEL

0.4

Correlation Coefficient

ARISTOCRAT LEISURE  BLUESCOPE STEEL

Very weak diversification

The 3 months correlation between ARISTOCRAT and BLUESCOPE is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding ARISTOCRAT LEISURE and BLUESCOPE STEEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BLUESCOPE STEEL and ARISTOCRAT LEISURE 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 ARISTOCRAT LEISURE 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 ARISTOCRAT LEISURE i.e., ARISTOCRAT LEISURE and BLUESCOPE STEEL go up and down completely randomly.

Pair Corralation between ARISTOCRAT LEISURE and BLUESCOPE STEEL

Assuming the 90 days trading horizon ARISTOCRAT LEISURE is expected to under-perform the BLUESCOPE STEEL. But the stock apears to be less risky and, when comparing its historical volatility, ARISTOCRAT LEISURE is 1.58 times less risky than BLUESCOPE STEEL. The stock trades about -0.08 of its potential returns per unit of risk. The BLUESCOPE STEEL is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,116  in BLUESCOPE STEEL on December 24, 2024 and sell it today you would earn a total of  164.00  from holding BLUESCOPE STEEL or generate 14.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

ARISTOCRAT LEISURE  vs.  BLUESCOPE STEEL

ARISTOCRAT LEISURE

Risk-Adjusted Performance

Very Weak

Over the last 90 days ARISTOCRAT LEISURE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

BLUESCOPE STEEL

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BLUESCOPE STEEL are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BLUESCOPE STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ARISTOCRAT LEISURE and BLUESCOPE STEEL

The main advantage of trading using opposite ARISTOCRAT LEISURE and BLUESCOPE STEEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARISTOCRAT LEISURE 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 ARISTOCRAT LEISURE and BLUESCOPE STEEL 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.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.