Correlation Between BKV and BlueScope Steel

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

By analyzing existing cross correlation between BKV Corporation and BlueScope Steel Ltd, you can compare the effects of market volatilities on BKV and BlueScope 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 BKV with a short position of BlueScope Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of BKV and BlueScope Steel.

Diversification Opportunities for BKV and BlueScope Steel

-0.7

Correlation Coefficient

BKV  BlueScope Steel

Excellent diversification

The 3 months correlation between BKV and BlueScope is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding BKV Corp. and BlueScope Steel Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and BKV 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 BKV Corporation are associated (or correlated) with BlueScope Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlueScope Steel has no effect on the direction of BKV i.e., BKV and BlueScope Steel go up and down completely randomly.

Pair Corralation between BKV and BlueScope Steel

Considering the 90-day investment horizon BKV Corporation is expected to generate 0.56 times more return on investment than BlueScope Steel. However, BKV Corporation is 1.8 times less risky than BlueScope Steel. It trades about 0.18 of its potential returns per unit of risk. BlueScope Steel Ltd is currently generating about -0.13 per unit of risk. If you would invest  2,300  in BKV Corporation on October 15, 2024 and sell it today you would earn a total of  145.00  from holding BKV Corporation or generate 6.3% return on investment over 90 days.

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

BKV Corp.  vs.  BlueScope Steel Ltd

BKV Corporation

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BKV Corporation are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, BKV showed solid returns over the last few months and may actually be approaching a breakup point.

BlueScope Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BlueScope Steel Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with BKV and BlueScope Steel

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

The idea behind BKV Corporation and BlueScope Steel Ltd 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.