Correlation Between BC IRON and BlueScope Steel

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

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

Diversification Opportunities for BC IRON and BlueScope Steel

-0.49

Correlation Coefficient

BC IRON  BlueScope Steel

Very good diversification

The 3 months correlation between BC3 and BlueScope is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding BC IRON and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and BC IRON 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 BC IRON 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 BC IRON i.e., BC IRON and BlueScope Steel go up and down completely randomly.

Pair Corralation between BC IRON and BlueScope Steel

Assuming the 90 days trading horizon BC IRON is expected to under-perform the BlueScope Steel. But the stock apears to be less risky and, when comparing its historical volatility, BC IRON is 1.05 times less risky than BlueScope Steel. The stock trades about -0.09 of its potential returns per unit of risk. The BlueScope Steel Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. 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 Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BC IRON  vs.  BlueScope Steel Limited

BC IRON

Risk-Adjusted Performance

Very Weak

Over the last 90 days BC IRON has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing 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 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 BC IRON and BlueScope Steel

The main advantage of trading using opposite BC IRON and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BC IRON 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 BC IRON 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.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.