Correlation Between BlueScope Steel and Sterling Construction

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

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

Diversification Opportunities for BlueScope Steel and Sterling Construction

0.35

Correlation Coefficient

BlueScope Steel  Sterling Construction

Weak diversification

The 3 months correlation between BlueScope and Sterling is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding BlueScope Steel Limited and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction 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 Limited are associated (or correlated) with Sterling Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Construction has no effect on the direction of BlueScope Steel i.e., BlueScope Steel and Sterling Construction go up and down completely randomly.

Pair Corralation between BlueScope Steel and Sterling Construction

Assuming the 90 days horizon BlueScope Steel is expected to generate 4.07 times less return on investment than Sterling Construction. But when comparing it to its historical volatility, BlueScope Steel Limited is 1.72 times less risky than Sterling Construction. It trades about 0.11 of its potential returns per unit of risk. Sterling Construction is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  12,825  in Sterling Construction on April 24, 2025 and sell it today you would earn a total of  7,775  from holding Sterling Construction or generate 60.62% 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 Limited  vs.  Sterling Construction

BlueScope Steel

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BlueScope Steel Limited are ranked lower than 8 (%) 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 August 2025.

Sterling Construction

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sterling Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BlueScope Steel and Sterling Construction

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

The idea behind BlueScope Steel Limited and Sterling Construction 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.