Correlation Between Bluescope Steel and FireFly Metals

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

Diversification Opportunities for Bluescope Steel and FireFly Metals

0.63

Correlation Coefficient

Bluescope Steel  FireFly Metals

Poor diversification

The 3 months correlation between Bluescope and FireFly is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Bluescope Steel and FireFly Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FireFly 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 FireFly Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FireFly Metals has no effect on the direction of Bluescope Steel i.e., Bluescope Steel and FireFly Metals go up and down completely randomly.

Pair Corralation between Bluescope Steel and FireFly Metals

Assuming the 90 days trading horizon Bluescope Steel is expected to generate 1.28 times less return on investment than FireFly Metals. But when comparing it to its historical volatility, Bluescope Steel is 2.11 times less risky than FireFly Metals. It trades about 0.2 of its potential returns per unit of risk. FireFly Metals is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  93.00  in FireFly Metals on October 22, 2024 and sell it today you would earn a total of  5.00  from holding FireFly Metals or generate 5.38% 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.  FireFly Metals

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.

FireFly Metals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Bluescope Steel and FireFly Metals

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

The idea behind Bluescope Steel and FireFly 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.