Correlation Between BlueScope Steel and Mesabi Trust

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

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

Diversification Opportunities for BlueScope Steel and Mesabi Trust

0.45

Correlation Coefficient

BlueScope Steel  Mesabi Trust

Very weak diversification

The 3 months correlation between BlueScope and Mesabi is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Ltd and Mesabi Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mesabi Trust 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 Ltd are associated (or correlated) with Mesabi Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mesabi Trust has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and Mesabi Trust go up and down completely randomly.

Pair Corralation between BlueScope Steel and Mesabi Trust

Assuming the 90 days horizon BlueScope Steel Ltd is expected to generate 0.99 times more return on investment than Mesabi Trust. However, BlueScope Steel Ltd is 1.01 times less risky than Mesabi Trust. It trades about 0.28 of its potential returns per unit of risk. Mesabi Trust is currently generating about -0.06 per unit of risk. If you would invest  6,531  in BlueScope Steel Ltd on February 11, 2025 and sell it today you would earn a total of  1,124  from holding BlueScope Steel Ltd or generate 17.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

BlueScope Steel Ltd  vs.  Mesabi Trust

BlueScope Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BlueScope Steel Ltd are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, BlueScope Steel showed solid returns over the last few months and may actually be approaching a breakup point.

Mesabi Trust

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Mesabi Trust are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Mesabi Trust is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BlueScope Steel and Mesabi Trust

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

The idea behind BlueScope Steel Ltd and Mesabi Trust 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.