Correlation Between Visa and BlueScope Steel

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

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

Diversification Opportunities for Visa and BlueScope Steel

-0.39

Correlation Coefficient

Visa  BlueScope Steel

Very good diversification

The 3 months correlation between Visa and BlueScope is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and BlueScope Steel Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Visa 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 Visa Class A 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 Visa i.e., Visa and BlueScope Steel go up and down completely randomly.

Pair Corralation between Visa and BlueScope Steel

Taking into account the 90-day investment horizon Visa Class A is expected to generate 0.28 times more return on investment than BlueScope Steel. However, Visa Class A is 3.58 times less risky than BlueScope Steel. It trades about 0.14 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  31,182  in Visa Class A on September 27, 2024 and sell it today you would earn a total of  883.00  from holding Visa Class A or generate 2.83% return on investment over 90 days.

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

Visa Class A  vs.  BlueScope Steel Ltd

Visa Class A

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

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 latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Visa and BlueScope Steel

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

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.