Correlation Between Bluescope Steel and Everest Metals

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

Diversification Opportunities for Bluescope Steel and Everest Metals

0.88

Correlation Coefficient

Bluescope Steel  Everest Metals

Very poor diversification

The 3 months correlation between Bluescope and Everest is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Bluescope Steel and Everest Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Everest 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 Everest Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Everest Metals has no effect on the direction of Bluescope Steel i.e., Bluescope Steel and Everest Metals go up and down completely randomly.

Pair Corralation between Bluescope Steel and Everest Metals

Assuming the 90 days trading horizon Bluescope Steel is expected to generate 1.11 times less return on investment than Everest Metals. But when comparing it to its historical volatility, Bluescope Steel is 2.06 times less risky than Everest Metals. It trades about 0.13 of its potential returns per unit of risk. Everest Metals is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  14.00  in Everest Metals on December 24, 2024 and sell it today you would earn a total of  2.00  from holding Everest Metals or generate 14.29% return on investment over 90 days.

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

Bluescope Steel  vs.  Everest Metals

Bluescope Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bluescope Steel are ranked lower than 10 (%) 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.

Everest Metals

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Everest Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Everest Metals unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Bluescope Steel and Everest Metals

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

The idea behind Bluescope Steel and Everest 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.