Correlation Between LEGACY IRON and BLUESCOPE STEEL

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

By analyzing existing cross correlation between LEGACY IRON ORE and BLUESCOPE STEEL, you can compare the effects of market volatilities on LEGACY IRON 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 LEGACY IRON with a short position of BLUESCOPE STEEL. Check out your portfolio center. Please also check ongoing floating volatility patterns of LEGACY IRON and BLUESCOPE STEEL.

Diversification Opportunities for LEGACY IRON and BLUESCOPE STEEL

-0.16

Correlation Coefficient

LEGACY IRON  BLUESCOPE STEEL

Good diversification

The 3 months correlation between LEGACY and BLUESCOPE is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding LEGACY IRON ORE and BLUESCOPE STEEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BLUESCOPE STEEL and LEGACY IRON 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 LEGACY IRON ORE 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 LEGACY IRON i.e., LEGACY IRON and BLUESCOPE STEEL go up and down completely randomly.

Pair Corralation between LEGACY IRON and BLUESCOPE STEEL

Assuming the 90 days trading horizon LEGACY IRON ORE is expected to under-perform the BLUESCOPE STEEL. But the stock apears to be less risky and, when comparing its historical volatility, LEGACY IRON ORE is 1.92 times less risky than BLUESCOPE STEEL. The stock trades about -0.12 of its potential returns per unit of risk. The BLUESCOPE STEEL is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,209  in BLUESCOPE STEEL on September 2, 2024 and sell it today you would earn a total of  141.00  from holding BLUESCOPE STEEL or generate 11.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

LEGACY IRON ORE  vs.  BLUESCOPE STEEL

LEGACY IRON ORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LEGACY IRON ORE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

BLUESCOPE STEEL

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BLUESCOPE STEEL are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BLUESCOPE STEEL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with LEGACY IRON and BLUESCOPE STEEL

The main advantage of trading using opposite LEGACY IRON and BLUESCOPE STEEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LEGACY IRON 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 LEGACY IRON ORE and BLUESCOPE STEEL 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.