Correlation Between Summit Materials and STEEL DYNAMICS

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

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

Diversification Opportunities for Summit Materials and STEEL DYNAMICS

0.26

Correlation Coefficient

Summit Materials  STEEL DYNAMICS

Modest diversification

The 3 months correlation between Summit and STEEL is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials and STEEL DYNAMICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEEL DYNAMICS and Summit Materials 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 Summit Materials are associated (or correlated) with STEEL DYNAMICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STEEL DYNAMICS has no effect on the direction of Summit Materials i.e., Summit Materials and STEEL DYNAMICS go up and down completely randomly.

Pair Corralation between Summit Materials and STEEL DYNAMICS

Assuming the 90 days trading horizon Summit Materials is expected to generate 1.12 times more return on investment than STEEL DYNAMICS. However, Summit Materials is 1.12 times more volatile than STEEL DYNAMICS. It trades about 0.25 of its potential returns per unit of risk. STEEL DYNAMICS is currently generating about -0.01 per unit of risk. If you would invest  3,500  in Summit Materials on October 11, 2024 and sell it today you would earn a total of  1,380  from holding Summit Materials or generate 39.43% return on investment over 90 days.

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

Summit Materials  vs.  STEEL DYNAMICS

Summit Materials

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Summit Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

STEEL DYNAMICS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STEEL DYNAMICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, STEEL DYNAMICS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Summit Materials and STEEL DYNAMICS

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

The idea behind Summit Materials and STEEL DYNAMICS 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.