Correlation Between BlueScope Steel and Lamar Advertising

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

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

Diversification Opportunities for BlueScope Steel and Lamar Advertising

0.67

Correlation Coefficient

BlueScope Steel  Lamar Advertising

Poor diversification

The 3 months correlation between BlueScope and Lamar is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Limited and Lamar Advertising in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lamar Advertising and BlueScope Steel 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 BlueScope Steel Limited are associated (or correlated) with Lamar Advertising. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lamar Advertising has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and Lamar Advertising go up and down completely randomly.

Pair Corralation between BlueScope Steel and Lamar Advertising

Assuming the 90 days horizon BlueScope Steel Limited is expected to generate 1.77 times more return on investment than Lamar Advertising. However, BlueScope Steel is 1.77 times more volatile than Lamar Advertising. It trades about 0.16 of its potential returns per unit of risk. Lamar Advertising is currently generating about 0.13 per unit of risk. If you would invest  1,240  in BlueScope Steel Limited on September 4, 2024 and sell it today you would earn a total of  120.00  from holding BlueScope Steel Limited or generate 9.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

BlueScope Steel Limited  vs.  Lamar Advertising

BlueScope Steel

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BlueScope Steel Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, BlueScope Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Lamar Advertising

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lamar Advertising are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Lamar Advertising unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BlueScope Steel and Lamar Advertising

The main advantage of trading using opposite BlueScope Steel and Lamar Advertising positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BlueScope Steel position performs unexpectedly, Lamar Advertising 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 Lamar Advertising will offset losses from the drop in Lamar Advertising's long position.

The idea behind BlueScope Steel Limited and Lamar Advertising 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.