Correlation Between BlueScope Steel and Algoma Steel

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

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

Diversification Opportunities for BlueScope Steel and Algoma Steel

0.27

Correlation Coefficient

BlueScope Steel  Algoma Steel

Modest diversification

The 3 months correlation between BlueScope and Algoma is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Ltd and Algoma Steel Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Steel Group 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 Ltd are associated (or correlated) with Algoma Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Steel Group has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and Algoma Steel go up and down completely randomly.

Pair Corralation between BlueScope Steel and Algoma Steel

Assuming the 90 days horizon BlueScope Steel Ltd is expected to generate 1.12 times more return on investment than Algoma Steel. However, BlueScope Steel is 1.12 times more volatile than Algoma Steel Group. It trades about -0.18 of its potential returns per unit of risk. Algoma Steel Group is currently generating about -0.35 per unit of risk. If you would invest  7,252  in BlueScope Steel Ltd on September 27, 2024 and sell it today you would lose (952.00) from holding BlueScope Steel Ltd or give up 13.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

BlueScope Steel Ltd  vs.  Algoma Steel Group

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 fairly strong technical and fundamental indicators, BlueScope Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Algoma Steel Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algoma Steel Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's essential indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with BlueScope Steel and Algoma Steel

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

The idea behind BlueScope Steel Ltd and Algoma Steel Group 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.