Correlation Between Bluescope Steel and Eastern Iron

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

By analyzing existing cross correlation between Bluescope Steel and Eastern Iron, you can compare the effects of market volatilities on Bluescope Steel and Eastern Iron 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 Eastern Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bluescope Steel and Eastern Iron.

Diversification Opportunities for Bluescope Steel and Eastern Iron

0.26

Correlation Coefficient

Bluescope Steel  Eastern Iron

Modest diversification

The 3 months correlation between Bluescope and Eastern is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Bluescope Steel and Eastern Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Iron 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 are associated (or correlated) with Eastern Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Iron has no effect on the direction of Bluescope Steel i.e., Bluescope Steel and Eastern Iron go up and down completely randomly.

Pair Corralation between Bluescope Steel and Eastern Iron

Assuming the 90 days trading horizon Bluescope Steel is expected to generate 0.2 times more return on investment than Eastern Iron. However, Bluescope Steel is 5.03 times less risky than Eastern Iron. It trades about 0.03 of its potential returns per unit of risk. Eastern Iron is currently generating about -0.02 per unit of risk. If you would invest  1,592  in Bluescope Steel on September 24, 2024 and sell it today you would earn a total of  329.00  from holding Bluescope Steel or generate 20.67% return on investment over 90 days.

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

Bluescope Steel  vs.  Eastern Iron

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 essential indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Eastern Iron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eastern Iron has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental 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 Bluescope Steel and Eastern Iron

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

The idea behind Bluescope Steel and Eastern Iron 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.