Correlation Between Alcoa Corp and Steel Dynamics

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

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

Diversification Opportunities for Alcoa Corp and Steel Dynamics

-0.29

Correlation Coefficient

Alcoa Corp  Steel Dynamics

Very good diversification

The 3 months correlation between Alcoa and Steel is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Alcoa Corp and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and Alcoa Corp 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 Alcoa Corp 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 Alcoa Corp i.e., Alcoa Corp and Steel Dynamics go up and down completely randomly.

Pair Corralation between Alcoa Corp and Steel Dynamics

Allowing for the 90-day total investment horizon Alcoa Corp is expected to under-perform the Steel Dynamics. In addition to that, Alcoa Corp is 1.35 times more volatile than Steel Dynamics. It trades about -0.08 of its total potential returns per unit of risk. Steel Dynamics is currently generating about 0.09 per unit of volatility. If you would invest  11,530  in Steel Dynamics on December 27, 2024 and sell it today you would earn a total of  1,269  from holding Steel Dynamics or generate 11.01% return on investment over 90 days.

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

Alcoa Corp  vs.  Steel Dynamics

Alcoa Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alcoa Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Steel Dynamics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Alcoa Corp and Steel Dynamics

The main advantage of trading using opposite Alcoa Corp and Steel Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alcoa Corp 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' long position.

The idea behind Alcoa Corp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.