Correlation Between Ferrexpo PLC and BlueScope Steel

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

By analyzing existing cross correlation between Ferrexpo PLC and BlueScope Steel Ltd, you can compare the effects of market volatilities on Ferrexpo PLC and BlueScope 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 Ferrexpo PLC with a short position of BlueScope Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ferrexpo PLC and BlueScope Steel.

Diversification Opportunities for Ferrexpo PLC and BlueScope Steel

-0.53

Correlation Coefficient

Ferrexpo PLC  BlueScope Steel

Excellent diversification

The 3 months correlation between Ferrexpo and BlueScope is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Ferrexpo PLC and BlueScope Steel Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Ferrexpo PLC 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 Ferrexpo PLC are associated (or correlated) with BlueScope Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BlueScope Steel has no effect on the direction of Ferrexpo PLC i.e., Ferrexpo PLC and BlueScope Steel go up and down completely randomly.

Pair Corralation between Ferrexpo PLC and BlueScope Steel

Assuming the 90 days horizon Ferrexpo PLC is expected to generate 4.89 times more return on investment than BlueScope Steel. However, Ferrexpo PLC is 4.89 times more volatile than BlueScope Steel Ltd. It trades about 0.14 of its potential returns per unit of risk. BlueScope Steel Ltd is currently generating about -0.25 per unit of risk. If you would invest  95.00  in Ferrexpo PLC on September 29, 2024 and sell it today you would earn a total of  28.00  from holding Ferrexpo PLC or generate 29.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

Ferrexpo PLC  vs.  BlueScope Steel Ltd

Ferrexpo PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ferrexpo PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Ferrexpo PLC reported solid returns over the last few months and may actually be approaching a breakup point.

BlueScope Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BlueScope Steel Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ferrexpo PLC and BlueScope Steel

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

The idea behind Ferrexpo PLC and BlueScope Steel Ltd 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.