Correlation Between BlueScope Steel and American States

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

Diversification Opportunities for BlueScope Steel and American States

0.26

Correlation Coefficient

BlueScope Steel  American States

Modest diversification

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

Pair Corralation between BlueScope Steel and American States

Assuming the 90 days horizon BlueScope Steel Limited is expected to generate 1.36 times more return on investment than American States. However, BlueScope Steel is 1.36 times more volatile than American States Water. It trades about 0.01 of its potential returns per unit of risk. American States Water is currently generating about -0.01 per unit of risk. If you would invest  1,074  in BlueScope Steel Limited on October 4, 2024 and sell it today you would earn a total of  56.00  from holding BlueScope Steel Limited or generate 5.21% return on investment over 90 days.

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

BlueScope Steel Limited  vs.  American States Water

BlueScope Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BlueScope Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

American States Water

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BlueScope Steel and American States

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

The idea behind BlueScope Steel Limited and American States Water 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.