Correlation Between CITIC Telecom and BlueScope Steel

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

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

Diversification Opportunities for CITIC Telecom and BlueScope Steel

0.65

Correlation Coefficient

CITIC Telecom  BlueScope Steel

Poor diversification

The 3 months correlation between CITIC and BlueScope is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding CITIC Telecom International and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and CITIC Telecom 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 CITIC Telecom International 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 CITIC Telecom i.e., CITIC Telecom and BlueScope Steel go up and down completely randomly.

Pair Corralation between CITIC Telecom and BlueScope Steel

Assuming the 90 days horizon CITIC Telecom is expected to generate 8.96 times less return on investment than BlueScope Steel. In addition to that, CITIC Telecom is 1.75 times more volatile than BlueScope Steel Limited. It trades about 0.01 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  1,126  in BlueScope Steel Limited on December 22, 2024 and sell it today you would earn a total of  174.00  from holding BlueScope Steel Limited or generate 15.45% return on investment over 90 days.

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

CITIC Telecom International  vs.  BlueScope Steel Limited

CITIC Telecom Intern

Risk-Adjusted Performance

Very Weak

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

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 fragile basic indicators, BlueScope Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CITIC Telecom and BlueScope Steel

The main advantage of trading using opposite CITIC Telecom and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CITIC Telecom 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 CITIC Telecom International 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.