Correlation Between BlueScope Steel and Charoen Pokphand

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

Diversification Opportunities for BlueScope Steel and Charoen Pokphand

0.29

Correlation Coefficient

BlueScope Steel  Charoen Pokphand

Modest diversification

The 3 months correlation between BlueScope and Charoen is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Limited and Charoen Pokphand Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charoen Pokphand Foods 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 Charoen Pokphand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charoen Pokphand Foods has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and Charoen Pokphand go up and down completely randomly.

Pair Corralation between BlueScope Steel and Charoen Pokphand

Assuming the 90 days horizon BlueScope Steel is expected to generate 1.76 times less return on investment than Charoen Pokphand. But when comparing it to its historical volatility, BlueScope Steel Limited is 1.51 times less risky than Charoen Pokphand. It trades about 0.01 of its potential returns per unit of risk. Charoen Pokphand Foods is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  65.00  in Charoen Pokphand Foods on October 6, 2024 and sell it today you would earn a total of  2.00  from holding Charoen Pokphand Foods or generate 3.08% 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.  Charoen Pokphand Foods

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 uncertain 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.

Charoen Pokphand Foods

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Charoen Pokphand Foods are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Charoen Pokphand 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 Charoen Pokphand

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

The idea behind BlueScope Steel Limited and Charoen Pokphand Foods 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.