Correlation Between BlueScope Steel and KRAKATAU STEEL

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

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

Diversification Opportunities for BlueScope Steel and KRAKATAU STEEL

0.26

Correlation Coefficient

BlueScope Steel  KRAKATAU STEEL

Modest diversification

The 3 months correlation between BlueScope and KRAKATAU is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Limited and KRAKATAU STEEL B in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KRAKATAU STEEL B and BlueScope 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 BlueScope Steel Limited are associated (or correlated) with KRAKATAU STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KRAKATAU STEEL B has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and KRAKATAU STEEL go up and down completely randomly.

Pair Corralation between BlueScope Steel and KRAKATAU STEEL

Assuming the 90 days horizon BlueScope Steel Limited is expected to under-perform the KRAKATAU STEEL. But the stock apears to be less risky and, when comparing its historical volatility, BlueScope Steel Limited is 4.89 times less risky than KRAKATAU STEEL. The stock trades about -0.01 of its potential returns per unit of risk. The KRAKATAU STEEL B is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1.60  in KRAKATAU STEEL B on September 17, 2024 and sell it today you would lose (1.00) from holding KRAKATAU STEEL B or give up 62.5% of portfolio value over 90 days.

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

BlueScope Steel Limited  vs.  KRAKATAU STEEL B

BlueScope Steel

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BlueScope Steel Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BlueScope Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

KRAKATAU STEEL B

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KRAKATAU STEEL B are ranked lower than 11 (%) 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.

Pair Trading with BlueScope Steel and KRAKATAU STEEL

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

The idea behind BlueScope Steel Limited and KRAKATAU STEEL B 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.