Correlation Between AIR PRODCHEMICALS and BLUESCOPE STEEL

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

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

Diversification Opportunities for AIR PRODCHEMICALS and BLUESCOPE STEEL

0.09

Correlation Coefficient

AIR PRODCHEMICALS  BLUESCOPE STEEL

Significant diversification

The 3 months correlation between AIR and BLUESCOPE is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding AIR PRODCHEMICALS and BLUESCOPE STEEL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BLUESCOPE STEEL and AIR PRODCHEMICALS 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 AIR PRODCHEMICALS 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 AIR PRODCHEMICALS i.e., AIR PRODCHEMICALS and BLUESCOPE STEEL go up and down completely randomly.

Pair Corralation between AIR PRODCHEMICALS and BLUESCOPE STEEL

Assuming the 90 days trading horizon AIR PRODCHEMICALS is expected to generate 0.63 times more return on investment than BLUESCOPE STEEL. However, AIR PRODCHEMICALS is 1.59 times less risky than BLUESCOPE STEEL. It trades about 0.1 of its potential returns per unit of risk. BLUESCOPE STEEL is currently generating about -0.05 per unit of risk. If you would invest  25,670  in AIR PRODCHEMICALS on September 22, 2024 and sell it today you would earn a total of  2,590  from holding AIR PRODCHEMICALS or generate 10.09% return on investment over 90 days.

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

AIR PRODCHEMICALS  vs.  BLUESCOPE STEEL

AIR PRODCHEMICALS

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AIR PRODCHEMICALS are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, AIR PRODCHEMICALS 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 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with AIR PRODCHEMICALS and BLUESCOPE STEEL

The main advantage of trading using opposite AIR PRODCHEMICALS and BLUESCOPE STEEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AIR PRODCHEMICALS 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 AIR PRODCHEMICALS 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.