Correlation Between Universal Stainless and BlueScope Steel

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

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

Diversification Opportunities for Universal Stainless and BlueScope Steel

-0.34

Correlation Coefficient

Universal Stainless  BlueScope Steel

Very good diversification

The 3 months correlation between Universal and BlueScope is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Universal Stainless Alloy and BlueScope Steel Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Universal Stainless 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 Universal Stainless Alloy 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 Universal Stainless i.e., Universal Stainless and BlueScope Steel go up and down completely randomly.

Pair Corralation between Universal Stainless and BlueScope Steel

Given the investment horizon of 90 days Universal Stainless Alloy is expected to generate 0.05 times more return on investment than BlueScope Steel. However, Universal Stainless Alloy is 19.68 times less risky than BlueScope Steel. It trades about -0.17 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  4,440  in Universal Stainless Alloy on September 27, 2024 and sell it today you would lose (30.00) from holding Universal Stainless Alloy or give up 0.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Universal Stainless Alloy  vs.  BlueScope Steel Ltd

Universal Stainless Alloy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Stainless Alloy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Universal Stainless may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 fairly strong technical and fundamental indicators, BlueScope Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Universal Stainless and BlueScope Steel

The main advantage of trading using opposite Universal Stainless and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal Stainless 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 Universal Stainless Alloy 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.