Correlation Between BlueScope Steel and Kumba Iron

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

Diversification Opportunities for BlueScope Steel and Kumba Iron

0.77

Correlation Coefficient

BlueScope Steel  Kumba Iron

Poor diversification

The 3 months correlation between BlueScope and Kumba is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Ltd and Kumba Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kumba Iron Ore 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 Kumba Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kumba Iron Ore has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and Kumba Iron go up and down completely randomly.

Pair Corralation between BlueScope Steel and Kumba Iron

Assuming the 90 days horizon BlueScope Steel Ltd is expected to generate 0.74 times more return on investment than Kumba Iron. However, BlueScope Steel Ltd is 1.35 times less risky than Kumba Iron. It trades about 0.01 of its potential returns per unit of risk. Kumba Iron Ore is currently generating about 0.0 per unit of risk. If you would invest  6,364  in BlueScope Steel Ltd on October 15, 2024 and sell it today you would lose (590.00) from holding BlueScope Steel Ltd or give up 9.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.18%
Values	Daily Returns

BlueScope Steel Ltd  vs.  Kumba Iron Ore

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.

Kumba Iron Ore

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Kumba Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic 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 BlueScope Steel and Kumba Iron

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

The idea behind BlueScope Steel Ltd and Kumba Iron Ore 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.