Correlation Between BlueScope Steel and Wal-Mart

Can any of the company-specific risk be diversified away by investing in both BlueScope Steel and Wal-Mart 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 Wal-Mart 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 Wal Mart de Mxico, you can compare the effects of market volatilities on BlueScope Steel and Wal-Mart 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 Wal-Mart. Check out your portfolio center. Please also check ongoing floating volatility patterns of BlueScope Steel and Wal-Mart.

Diversification Opportunities for BlueScope Steel and Wal-Mart

-0.17

Correlation Coefficient

BlueScope Steel  Wal-Mart

Good diversification

The 3 months correlation between BlueScope and Wal-Mart is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Limited and Wal Mart de Mxico in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wal Mart de 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 Wal-Mart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wal Mart de has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and Wal-Mart go up and down completely randomly.

Pair Corralation between BlueScope Steel and Wal-Mart

Assuming the 90 days horizon BlueScope Steel Limited is expected to generate 0.86 times more return on investment than Wal-Mart. However, BlueScope Steel Limited is 1.16 times less risky than Wal-Mart. It trades about 0.12 of its potential returns per unit of risk. Wal Mart de Mxico is currently generating about -0.05 per unit of risk. If you would invest  1,126  in BlueScope Steel Limited on December 21, 2024 and sell it today you would earn a total of  204.00  from holding BlueScope Steel Limited or generate 18.12% return on investment over 90 days.

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

BlueScope Steel Limited  vs.  Wal Mart de Mxico

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 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, BlueScope Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Wal Mart de

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wal Mart de Mxico has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with BlueScope Steel and Wal-Mart

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

The idea behind BlueScope Steel Limited and Wal Mart de Mxico 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.