Correlation Between Ribbon Communications and BlueScope Steel

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

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

Diversification Opportunities for Ribbon Communications and BlueScope Steel

-0.35

Correlation Coefficient

Ribbon Communications  BlueScope Steel

Very good diversification

The 3 months correlation between Ribbon and BlueScope is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ribbon Communications and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Ribbon Communications 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 Ribbon Communications 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 Ribbon Communications i.e., Ribbon Communications and BlueScope Steel go up and down completely randomly.

Pair Corralation between Ribbon Communications and BlueScope Steel

Assuming the 90 days trading horizon Ribbon Communications is expected to generate 1.14 times more return on investment than BlueScope Steel. However, Ribbon Communications is 1.14 times more volatile than BlueScope Steel Limited. It trades about 0.21 of its potential returns per unit of risk. BlueScope Steel Limited is currently generating about -0.11 per unit of risk. If you would invest  286.00  in Ribbon Communications on September 29, 2024 and sell it today you would earn a total of  112.00  from holding Ribbon Communications or generate 39.16% return on investment over 90 days.

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

Ribbon Communications  vs.  BlueScope Steel Limited

Ribbon Communications

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ribbon Communications are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ribbon Communications 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 Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Ribbon Communications and BlueScope Steel

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

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.