Correlation Between BlueScope Steel and X FAB

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

Diversification Opportunities for BlueScope Steel and X FAB

0.23

Correlation Coefficient

BlueScope Steel  X FAB

Modest diversification

The 3 months correlation between BlueScope and XFB is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Limited and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon 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 X FAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and X FAB go up and down completely randomly.

Pair Corralation between BlueScope Steel and X FAB

Assuming the 90 days horizon BlueScope Steel Limited is expected to generate 0.71 times more return on investment than X FAB. However, BlueScope Steel Limited is 1.41 times less risky than X FAB. It trades about 0.03 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about 0.02 per unit of risk. If you would invest  1,200  in BlueScope Steel Limited on September 17, 2024 and sell it today you would earn a total of  40.00  from holding BlueScope Steel Limited or generate 3.33% 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.  X FAB Silicon Foundries

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.

X FAB Silicon

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in X FAB Silicon Foundries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BlueScope Steel and X FAB

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

The idea behind BlueScope Steel Limited and X FAB Silicon Foundries 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.