Correlation Between NYSE Composite and BlueScope Steel

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

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

Diversification Opportunities for NYSE Composite and BlueScope Steel

0.33

Correlation Coefficient

NYSE Composite  BlueScope Steel

Weak diversification

The 3 months correlation between NYSE and BlueScope is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and BlueScope Steel Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and NYSE Composite 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 NYSE Composite 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 NYSE Composite i.e., NYSE Composite and BlueScope Steel go up and down completely randomly.

Pair Corralation between NYSE Composite and BlueScope Steel

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.2 times more return on investment than BlueScope Steel. However, NYSE Composite is 4.96 times less risky than BlueScope Steel. It trades about -0.3 of its potential returns per unit of risk. BlueScope Steel Ltd is currently generating about -0.18 per unit of risk. If you would invest  2,021,945  in NYSE Composite on September 27, 2024 and sell it today you would lose (87,797) from holding NYSE Composite or give up 4.34% of portfolio value over 90 days.

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

NYSE Composite  vs.  BlueScope Steel Ltd

Pair Trading with NYSE Composite and BlueScope Steel

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

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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.