Correlation Between BlueScope Steel and Commercial Metals

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

Diversification Opportunities for BlueScope Steel and Commercial Metals

0.14

Correlation Coefficient

BlueScope Steel  Commercial Metals

Average diversification

The 3 months correlation between BlueScope and Commercial is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Limited and Commercial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Metals 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 Commercial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Metals has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and Commercial Metals go up and down completely randomly.

Pair Corralation between BlueScope Steel and Commercial Metals

Assuming the 90 days horizon BlueScope Steel Limited is expected to under-perform the Commercial Metals. But the pink sheet apears to be less risky and, when comparing its historical volatility, BlueScope Steel Limited is 1.21 times less risky than Commercial Metals. The pink sheet trades about -0.19 of its potential returns per unit of risk. The Commercial Metals is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  5,032  in Commercial Metals on December 24, 2024 and sell it today you would lose (373.00) from holding Commercial Metals or give up 7.41% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	66.67%
Values	Daily Returns

BlueScope Steel Limited  vs.  Commercial Metals

BlueScope Steel

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Commercial Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commercial Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with BlueScope Steel and Commercial Metals

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

The idea behind BlueScope Steel Limited and Commercial Metals 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.