Correlation Between Yellow Pages and BlueScope Steel

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

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

Diversification Opportunities for Yellow Pages and BlueScope Steel

-0.54

Correlation Coefficient

Yellow Pages  BlueScope Steel

Excellent diversification

The 3 months correlation between Yellow and BlueScope is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Yellow Pages Limited and BlueScope Steel Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Yellow Pages 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 Yellow Pages Limited 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 Yellow Pages i.e., Yellow Pages and BlueScope Steel go up and down completely randomly.

Pair Corralation between Yellow Pages and BlueScope Steel

Assuming the 90 days horizon Yellow Pages Limited is expected to generate 0.24 times more return on investment than BlueScope Steel. However, Yellow Pages Limited is 4.18 times less risky than BlueScope Steel. It trades about 0.29 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  752.00  in Yellow Pages Limited on September 27, 2024 and sell it today you would earn a total of  38.00  from holding Yellow Pages Limited or generate 5.05% return on investment over 90 days.

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

Yellow Pages Limited  vs.  BlueScope Steel Ltd

Yellow Pages Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yellow Pages Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Yellow Pages 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 latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Yellow Pages and BlueScope Steel

The main advantage of trading using opposite Yellow Pages and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Yellow Pages 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 Yellow Pages Limited 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.