Correlation Between Salzgitter and BlueScope Steel

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Can any of the company-specific risk be diversified away by investing in both Salzgitter 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 Salzgitter and BlueScope Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Salzgitter AG ADR and BlueScope Steel Ltd, you can compare the effects of market volatilities on Salzgitter 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 Salzgitter with a short position of BlueScope Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Salzgitter and BlueScope Steel.

Diversification Opportunities for Salzgitter and BlueScope Steel

0.27
  Correlation Coefficient

Modest diversification

The 3 months correlation between Salzgitter and BlueScope is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Salzgitter AG ADR and BlueScope Steel Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Salzgitter 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 Salzgitter AG ADR 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 Salzgitter i.e., Salzgitter and BlueScope Steel go up and down completely randomly.

Pair Corralation between Salzgitter and BlueScope Steel

Assuming the 90 days horizon Salzgitter AG ADR is expected to generate 0.73 times more return on investment than BlueScope Steel. However, Salzgitter AG ADR is 1.37 times less risky than BlueScope Steel. It trades about -0.23 of its potential returns per unit of risk. BlueScope Steel Ltd is currently generating about -0.25 per unit of risk. If you would invest  177.00  in Salzgitter AG ADR on September 29, 2024 and sell it today you would lose (19.00) from holding Salzgitter AG ADR or give up 10.73% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy95.24%
ValuesDaily Returns

Salzgitter AG ADR  vs.  BlueScope Steel Ltd

 Performance 
       Timeline  
Salzgitter AG ADR 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Salzgitter AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Salzgitter is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
BlueScope Steel 

Risk-Adjusted Performance

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Weak
 
Strong
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 latest unsteady performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Salzgitter and BlueScope Steel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Salzgitter and BlueScope Steel

The main advantage of trading using opposite Salzgitter and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Salzgitter 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 Salzgitter AG ADR 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.

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