Correlation Between Steel Dynamics and BlueScope Steel

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

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

Diversification Opportunities for Steel Dynamics and BlueScope Steel

0.62

Correlation Coefficient

Steel Dynamics  BlueScope Steel

Poor diversification

The 3 months correlation between Steel and BlueScope is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and BlueScope Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BlueScope Steel and Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics i.e., Steel Dynamics and BlueScope Steel go up and down completely randomly.

Pair Corralation between Steel Dynamics and BlueScope Steel

Assuming the 90 days horizon Steel Dynamics is expected to generate 1.1 times more return on investment than BlueScope Steel. However, Steel Dynamics is 1.1 times more volatile than BlueScope Steel Limited. It trades about 0.15 of its potential returns per unit of risk. BlueScope Steel Limited is currently generating about 0.09 per unit of risk. If you would invest  10,650  in Steel Dynamics on September 1, 2024 and sell it today you would earn a total of  2,826  from holding Steel Dynamics or generate 26.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.48%
Values	Daily Returns

Steel Dynamics  vs.  BlueScope Steel Limited

Steel Dynamics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Steel Dynamics reported solid returns over the last few months and may actually be approaching a breakup point.

BlueScope Steel

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BlueScope Steel Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BlueScope Steel may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Steel Dynamics and BlueScope Steel

The main advantage of trading using opposite Steel Dynamics and BlueScope Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics 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 Steel Dynamics and BlueScope Steel Limited 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.