Correlation Between Caltagirone SpA and BlueScope Steel

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

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

Diversification Opportunities for Caltagirone SpA and BlueScope Steel

0.82

Correlation Coefficient

Caltagirone SpA  BlueScope Steel

Very poor diversification

The 3 months correlation between Caltagirone and BlueScope is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Caltagirone SpA and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Caltagirone SpA 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 Caltagirone SpA 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 Caltagirone SpA i.e., Caltagirone SpA and BlueScope Steel go up and down completely randomly.

Pair Corralation between Caltagirone SpA and BlueScope Steel

Assuming the 90 days trading horizon Caltagirone SpA is expected to generate 1.04 times less return on investment than BlueScope Steel. But when comparing it to its historical volatility, Caltagirone SpA is 1.0 times less risky than BlueScope Steel. It trades about 0.11 of its potential returns per unit of risk. BlueScope Steel Limited is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,116  in BlueScope Steel Limited on December 30, 2024 and sell it today you would earn a total of  184.00  from holding BlueScope Steel Limited or generate 16.49% return on investment over 90 days.

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

Caltagirone SpA  vs.  BlueScope Steel Limited

Caltagirone SpA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Caltagirone SpA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Caltagirone SpA unveiled solid returns over the last few months and may actually be approaching a breakup point.

BlueScope Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BlueScope Steel Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, BlueScope Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Caltagirone SpA and BlueScope Steel

The main advantage of trading using opposite Caltagirone SpA and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caltagirone SpA 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 Caltagirone SpA 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.