Correlation Between Steel Dynamics and BlueScope Steel

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

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

Diversification Opportunities for Steel Dynamics and BlueScope Steel

0.5

Correlation Coefficient

Steel Dynamics  BlueScope Steel

Very weak diversification

The 3 months correlation between Steel and BlueScope is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and BlueScope Steel Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics i.e., Steel Dynamics and BlueScope Steel go up and down completely randomly.

Pair Corralation between Steel Dynamics and BlueScope Steel

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the BlueScope Steel. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 1.81 times less risky than BlueScope Steel. The stock trades about -0.37 of its potential returns per unit of risk. The BlueScope Steel Ltd is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  6,961  in BlueScope Steel Ltd on October 9, 2024 and sell it today you would lose (850.00) from holding BlueScope Steel Ltd or give up 12.21% of portfolio value over 90 days.

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

Steel Dynamics  vs.  BlueScope Steel Ltd

Steel Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steel Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

BlueScope Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BlueScope Steel Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Steel Dynamics and BlueScope Steel

The main advantage of trading using opposite Steel Dynamics and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics 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 Steel Dynamics 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.