Correlation Between Iron Road and Nucor

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

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

Diversification Opportunities for Iron Road and Nucor

0.13

Correlation Coefficient

Iron Road  Nucor

Average diversification

The 3 months correlation between Iron and Nucor is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Iron Road Limited and Nucor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor and Iron Road 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 Iron Road Limited are associated (or correlated) with Nucor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor has no effect on the direction of Iron Road i.e., Iron Road and Nucor go up and down completely randomly.

Pair Corralation between Iron Road and Nucor

Assuming the 90 days horizon Iron Road Limited is expected to under-perform the Nucor. In addition to that, Iron Road is 1.77 times more volatile than Nucor. It trades about -0.27 of its total potential returns per unit of risk. Nucor is currently generating about -0.42 per unit of volatility. If you would invest  14,012  in Nucor on September 22, 2024 and sell it today you would lose (2,814) from holding Nucor or give up 20.08% of portfolio value over 90 days.

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

Iron Road Limited  vs.  Nucor

Iron Road Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Iron Road is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Nucor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nucor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Iron Road and Nucor

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

The idea behind Iron Road Limited and Nucor 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.