Correlation Between Bluescope Steel and Chilwa Minerals

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

By analyzing existing cross correlation between Bluescope Steel and Chilwa Minerals Limited, you can compare the effects of market volatilities on Bluescope Steel and Chilwa Minerals 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 Chilwa Minerals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bluescope Steel and Chilwa Minerals.

Diversification Opportunities for Bluescope Steel and Chilwa Minerals

0.65

Correlation Coefficient

Bluescope Steel  Chilwa Minerals

Poor diversification

The 3 months correlation between Bluescope and Chilwa is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Bluescope Steel and Chilwa Minerals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chilwa Minerals 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 are associated (or correlated) with Chilwa Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chilwa Minerals has no effect on the direction of Bluescope Steel i.e., Bluescope Steel and Chilwa Minerals go up and down completely randomly.

Pair Corralation between Bluescope Steel and Chilwa Minerals

Assuming the 90 days trading horizon Bluescope Steel is expected to generate 1.59 times less return on investment than Chilwa Minerals. But when comparing it to its historical volatility, Bluescope Steel is 1.76 times less risky than Chilwa Minerals. It trades about 0.1 of its potential returns per unit of risk. Chilwa Minerals Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  74.00  in Chilwa Minerals Limited on September 5, 2024 and sell it today you would earn a total of  14.00  from holding Chilwa Minerals Limited or generate 18.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Bluescope Steel  vs.  Chilwa Minerals Limited

Bluescope Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bluescope Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Bluescope Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Chilwa Minerals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chilwa Minerals Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Chilwa Minerals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bluescope Steel and Chilwa Minerals

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

The idea behind Bluescope Steel and Chilwa Minerals Limited 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.