Correlation Between Bluescope Steel and Nufarm

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

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

Diversification Opportunities for Bluescope Steel and Nufarm

0.22

Correlation Coefficient

Bluescope Steel  Nufarm

Modest diversification

The 3 months correlation between Bluescope and Nufarm is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Bluescope Steel and Nufarm in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nufarm 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 Nufarm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nufarm has no effect on the direction of Bluescope Steel i.e., Bluescope Steel and Nufarm go up and down completely randomly.

Pair Corralation between Bluescope Steel and Nufarm

Assuming the 90 days trading horizon Bluescope Steel is expected to generate 1.39 times more return on investment than Nufarm. However, Bluescope Steel is 1.39 times more volatile than Nufarm. It trades about -0.21 of its potential returns per unit of risk. Nufarm is currently generating about -0.36 per unit of risk. If you would invest  2,123  in Bluescope Steel on September 23, 2024 and sell it today you would lose (202.00) from holding Bluescope Steel or give up 9.51% of portfolio value over 90 days.

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

Bluescope Steel  vs.  Nufarm

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.

Nufarm

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nufarm has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Nufarm is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Bluescope Steel and Nufarm

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

The idea behind Bluescope Steel and Nufarm 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.