Correlation Between Bluescope Steel and Cyclone Metals

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

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

Diversification Opportunities for Bluescope Steel and Cyclone Metals

-0.47

Correlation Coefficient

Bluescope Steel  Cyclone Metals

Very good diversification

The 3 months correlation between Bluescope and Cyclone is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bluescope Steel and Cyclone Metals Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cyclone 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 are associated (or correlated) with Cyclone Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cyclone Metals has no effect on the direction of Bluescope Steel i.e., Bluescope Steel and Cyclone Metals go up and down completely randomly.

Pair Corralation between Bluescope Steel and Cyclone Metals

Assuming the 90 days trading horizon Bluescope Steel is expected to under-perform the Cyclone Metals. But the stock apears to be less risky and, when comparing its historical volatility, Bluescope Steel is 6.39 times less risky than Cyclone Metals. The stock trades about -0.11 of its potential returns per unit of risk. The Cyclone Metals Limited is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  2.30  in Cyclone Metals Limited on September 21, 2024 and sell it today you would earn a total of  2.20  from holding Cyclone Metals Limited or generate 95.65% return on investment over 90 days.

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

Bluescope Steel  vs.  Cyclone Metals Limited

Bluescope Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bluescope Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Bluescope Steel is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Cyclone Metals

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cyclone Metals Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical and fundamental indicators, Cyclone Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bluescope Steel and Cyclone Metals

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

The idea behind Bluescope Steel and Cyclone Metals 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.