Correlation Between Bluescope Steel and Predictive Discovery

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

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

Diversification Opportunities for Bluescope Steel and Predictive Discovery

-0.02

Correlation Coefficient

Bluescope Steel  Predictive Discovery

Good diversification

The 3 months correlation between Bluescope and Predictive is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Bluescope Steel and Predictive Discovery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Predictive Discovery 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 Predictive Discovery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Predictive Discovery has no effect on the direction of Bluescope Steel i.e., Bluescope Steel and Predictive Discovery go up and down completely randomly.

Pair Corralation between Bluescope Steel and Predictive Discovery

Assuming the 90 days trading horizon Bluescope Steel is expected to generate 2.68 times less return on investment than Predictive Discovery. But when comparing it to its historical volatility, Bluescope Steel is 2.59 times less risky than Predictive Discovery. It trades about 0.03 of its potential returns per unit of risk. Predictive Discovery is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  19.00  in Predictive Discovery on September 24, 2024 and sell it today you would earn a total of  5.00  from holding Predictive Discovery or generate 26.32% return on investment over 90 days.

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

Bluescope Steel  vs.  Predictive Discovery

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.

Predictive Discovery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Predictive Discovery has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward 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 Predictive Discovery

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

The idea behind Bluescope Steel and Predictive Discovery 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.