Correlation Between Ironbark Capital and Bluescope Steel

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

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

Diversification Opportunities for Ironbark Capital and Bluescope Steel

0.36

Correlation Coefficient

Ironbark Capital  Bluescope Steel

Weak diversification

The 3 months correlation between Ironbark and Bluescope is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Ironbark Capital and Bluescope Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bluescope Steel and Ironbark Capital 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 Ironbark Capital 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 Ironbark Capital i.e., Ironbark Capital and Bluescope Steel go up and down completely randomly.

Pair Corralation between Ironbark Capital and Bluescope Steel

Assuming the 90 days trading horizon Ironbark Capital is expected to generate 29.75 times less return on investment than Bluescope Steel. But when comparing it to its historical volatility, Ironbark Capital is 1.93 times less risky than Bluescope Steel. It trades about 0.01 of its potential returns per unit of risk. Bluescope Steel is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,030  in Bluescope Steel on September 1, 2024 and sell it today you would earn a total of  183.00  from holding Bluescope Steel or generate 9.01% return on investment over 90 days.

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

Ironbark Capital  vs.  Bluescope Steel

Ironbark Capital

Risk-Adjusted Performance

0 of 100

Very Weak

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

Bluescope Steel

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bluescope Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain essential indicators, Bluescope Steel may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Ironbark Capital and Bluescope Steel

The main advantage of trading using opposite Ironbark Capital and Bluescope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ironbark Capital 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 Ironbark Capital and Bluescope Steel 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.