Correlation Between Bluescope Steel and Falcon Metals

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

Diversification Opportunities for Bluescope Steel and Falcon Metals

0.03

Correlation Coefficient

Bluescope Steel  Falcon Metals

Significant diversification

The 3 months correlation between Bluescope and Falcon is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Bluescope Steel and Falcon Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falcon 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 Falcon Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falcon Metals has no effect on the direction of Bluescope Steel i.e., Bluescope Steel and Falcon Metals go up and down completely randomly.

Pair Corralation between Bluescope Steel and Falcon Metals

Assuming the 90 days trading horizon Bluescope Steel is expected to generate 0.43 times more return on investment than Falcon Metals. However, Bluescope Steel is 2.32 times less risky than Falcon Metals. It trades about 0.1 of its potential returns per unit of risk. Falcon Metals is currently generating about -0.08 per unit of risk. If you would invest  2,186  in Bluescope Steel on December 3, 2024 and sell it today you would earn a total of  270.00  from holding Bluescope Steel or generate 12.35% return on investment over 90 days.

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

Bluescope Steel  vs.  Falcon Metals

Bluescope Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bluescope Steel are ranked lower than 7 (%) 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.

Falcon Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Falcon Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Bluescope Steel and Falcon Metals

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

The idea behind Bluescope Steel and Falcon 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.