Correlation Between Bluescope Steel and Centaurus Metals

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

Diversification Opportunities for Bluescope Steel and Centaurus Metals

0.71

Correlation Coefficient

Bluescope Steel  Centaurus Metals

Poor diversification

The 3 months correlation between Bluescope and Centaurus is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Bluescope Steel and Centaurus Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centaurus 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 Centaurus Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centaurus Metals has no effect on the direction of Bluescope Steel i.e., Bluescope Steel and Centaurus Metals go up and down completely randomly.

Pair Corralation between Bluescope Steel and Centaurus Metals

Assuming the 90 days trading horizon Bluescope Steel is expected to generate 1.74 times less return on investment than Centaurus Metals. But when comparing it to its historical volatility, Bluescope Steel is 2.37 times less risky than Centaurus Metals. It trades about 0.08 of its potential returns per unit of risk. Centaurus Metals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  37.00  in Centaurus Metals on September 2, 2024 and sell it today you would earn a total of  4.00  from holding Centaurus Metals or generate 10.81% return on investment over 90 days.

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

Bluescope Steel  vs.  Centaurus Metals

Bluescope Steel

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bluescope Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Bluescope Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Centaurus Metals

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Centaurus Metals are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Centaurus Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bluescope Steel and Centaurus Metals

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

The idea behind Bluescope Steel and Centaurus Metals 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.