Correlation Between X FAB and BlueScope Steel

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

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

Diversification Opportunities for X FAB and BlueScope Steel

0.23

Correlation Coefficient

X FAB  BlueScope Steel

Modest diversification

The 3 months correlation between XFB and BlueScope is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding X FAB Silicon Foundries and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and X FAB 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 X FAB Silicon Foundries 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 X FAB i.e., X FAB and BlueScope Steel go up and down completely randomly.

Pair Corralation between X FAB and BlueScope Steel

Assuming the 90 days trading horizon X FAB Silicon Foundries is expected to under-perform the BlueScope Steel. In addition to that, X FAB is 1.43 times more volatile than BlueScope Steel Limited. It trades about -0.09 of its total potential returns per unit of risk. BlueScope Steel Limited is currently generating about -0.01 per unit of volatility. If you would invest  1,359  in BlueScope Steel Limited on September 17, 2024 and sell it today you would lose (119.00) from holding BlueScope Steel Limited or give up 8.76% of portfolio value over 90 days.

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

X FAB Silicon Foundries  vs.  BlueScope Steel Limited

X FAB Silicon

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in X FAB Silicon Foundries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

BlueScope Steel

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BlueScope Steel Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BlueScope Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with X FAB and BlueScope Steel

The main advantage of trading using opposite X FAB and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if X FAB 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 X FAB Silicon Foundries 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.