Correlation Between BlueScope Steel and Steel Dynamics

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

Diversification Opportunities for BlueScope Steel and Steel Dynamics

0.32

Correlation Coefficient

BlueScope Steel  Steel Dynamics

Weak diversification

The 3 months correlation between BlueScope and Steel is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Limited and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics 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 Steel Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Dynamics has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and Steel Dynamics go up and down completely randomly.

Pair Corralation between BlueScope Steel and Steel Dynamics

Assuming the 90 days horizon BlueScope Steel Limited is expected to under-perform the Steel Dynamics. But the pink sheet apears to be less risky and, when comparing its historical volatility, BlueScope Steel Limited is 1.47 times less risky than Steel Dynamics. The pink sheet trades about -0.15 of its potential returns per unit of risk. The Steel Dynamics is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  12,812  in Steel Dynamics on October 23, 2024 and sell it today you would lose (229.00) from holding Steel Dynamics or give up 1.79% of portfolio value over 90 days.

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

BlueScope Steel Limited  vs.  Steel Dynamics

BlueScope Steel

Risk-Adjusted Performance

0 of 100

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 February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Steel Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steel Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Steel Dynamics is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with BlueScope Steel and Steel Dynamics

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

The idea behind BlueScope Steel Limited and Steel Dynamics 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.