Correlation Between BLUESCOPE STEEL and NIPPON STEEL

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

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

Diversification Opportunities for BLUESCOPE STEEL and NIPPON STEEL

0.62

Correlation Coefficient

BLUESCOPE STEEL  NIPPON STEEL

Poor diversification

The 3 months correlation between BLUESCOPE and NIPPON is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding BLUESCOPE STEEL and NIPPON STEEL SPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NIPPON STEEL SPADR 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 NIPPON STEEL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NIPPON STEEL SPADR has no effect on the direction of BLUESCOPE STEEL i.e., BLUESCOPE STEEL and NIPPON STEEL go up and down completely randomly.

Pair Corralation between BLUESCOPE STEEL and NIPPON STEEL

Assuming the 90 days trading horizon BLUESCOPE STEEL is expected to generate 1.92 times less return on investment than NIPPON STEEL. But when comparing it to its historical volatility, BLUESCOPE STEEL is 1.44 times less risky than NIPPON STEEL. It trades about 0.02 of its potential returns per unit of risk. NIPPON STEEL SPADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  463.00  in NIPPON STEEL SPADR on September 25, 2024 and sell it today you would earn a total of  122.00  from holding NIPPON STEEL SPADR or generate 26.35% 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.  NIPPON STEEL SPADR

BLUESCOPE STEEL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BLUESCOPE STEEL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

NIPPON STEEL SPADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NIPPON STEEL SPADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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 NIPPON STEEL

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

The idea behind BLUESCOPE STEEL and NIPPON STEEL SPADR 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.