Correlation Between BLUESCOPE STEEL and Methode Electronics

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

By analyzing existing cross correlation between BLUESCOPE STEEL and Methode Electronics, you can compare the effects of market volatilities on BLUESCOPE STEEL and Methode Electronics 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 Methode Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of BLUESCOPE STEEL and Methode Electronics.

Diversification Opportunities for BLUESCOPE STEEL and Methode Electronics

0.63

Correlation Coefficient

BLUESCOPE STEEL  Methode Electronics

Poor diversification

The 3 months correlation between BLUESCOPE and Methode is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding BLUESCOPE STEEL and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics 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 are associated (or correlated) with Methode Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methode Electronics has no effect on the direction of BLUESCOPE STEEL i.e., BLUESCOPE STEEL and Methode Electronics go up and down completely randomly.

Pair Corralation between BLUESCOPE STEEL and Methode Electronics

Assuming the 90 days trading horizon BLUESCOPE STEEL is expected to generate 0.62 times more return on investment than Methode Electronics. However, BLUESCOPE STEEL is 1.6 times less risky than Methode Electronics. It trades about 0.09 of its potential returns per unit of risk. Methode Electronics is currently generating about 0.05 per unit of risk. If you would invest  1,199  in BLUESCOPE STEEL on September 3, 2024 and sell it today you would earn a total of  151.00  from holding BLUESCOPE STEEL or generate 12.59% return on investment over 90 days.

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

BLUESCOPE STEEL  vs.  Methode Electronics

BLUESCOPE STEEL

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BLUESCOPE STEEL are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, BLUESCOPE STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Methode Electronics

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Methode Electronics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with BLUESCOPE STEEL and Methode Electronics

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

The idea behind BLUESCOPE STEEL and Methode Electronics 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.