Correlation Between First and Baker Steel

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

By analyzing existing cross correlation between First Class Metals and Baker Steel Resources, you can compare the effects of market volatilities on First and Baker Steel 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 First with a short position of Baker Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of First and Baker Steel.

Diversification Opportunities for First and Baker Steel

0.14

Correlation Coefficient

First  Baker Steel

Average diversification

The 3 months correlation between First and Baker is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding First Class Metals and Baker Steel Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baker Steel Resources and First 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 First Class Metals are associated (or correlated) with Baker Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baker Steel Resources has no effect on the direction of First i.e., First and Baker Steel go up and down completely randomly.

Pair Corralation between First and Baker Steel

Assuming the 90 days trading horizon First Class Metals is expected to under-perform the Baker Steel. In addition to that, First is 2.99 times more volatile than Baker Steel Resources. It trades about -0.05 of its total potential returns per unit of risk. Baker Steel Resources is currently generating about -0.07 per unit of volatility. If you would invest  5,700  in Baker Steel Resources on December 23, 2024 and sell it today you would lose (530.00) from holding Baker Steel Resources or give up 9.3% of portfolio value over 90 days.

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

First Class Metals  vs.  Baker Steel Resources

First Class Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Class 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 technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Baker Steel Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Baker Steel Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with First and Baker Steel

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

The idea behind First Class Metals and Baker Steel Resources 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.