Correlation Between Insteel Industries and BlueScope Steel

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

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

Diversification Opportunities for Insteel Industries and BlueScope Steel

0.22

Correlation Coefficient

Insteel Industries  BlueScope Steel

Modest diversification

The 3 months correlation between Insteel and BlueScope is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Insteel Industries 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 Insteel Industries 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 Insteel Industries i.e., Insteel Industries and BlueScope Steel go up and down completely randomly.

Pair Corralation between Insteel Industries and BlueScope Steel

Assuming the 90 days horizon Insteel Industries is expected to generate 1.17 times less return on investment than BlueScope Steel. In addition to that, Insteel Industries is 1.17 times more volatile than BlueScope Steel Limited. It trades about 0.01 of its total potential returns per unit of risk. BlueScope Steel Limited is currently generating about 0.01 per unit of volatility. If you would invest  1,084  in BlueScope Steel Limited on October 5, 2024 and sell it today you would earn a total of  46.00  from holding BlueScope Steel Limited or generate 4.24% return on investment over 90 days.

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

Insteel Industries  vs.  BlueScope Steel Limited

Insteel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Insteel Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

BlueScope Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BlueScope Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Insteel Industries and BlueScope Steel

The main advantage of trading using opposite Insteel Industries and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insteel Industries 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 Insteel Industries and BlueScope Steel Limited 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.