Correlation Between Commercial Metals and Cleveland Cliffs

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

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

Diversification Opportunities for Commercial Metals and Cleveland Cliffs

0.06

Correlation Coefficient

Commercial Metals  Cleveland Cliffs

Significant diversification

The 3 months correlation between Commercial and Cleveland is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Metals and Cleveland Cliffs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cleveland Cliffs and Commercial Metals 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 Commercial Metals are associated (or correlated) with Cleveland Cliffs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cleveland Cliffs has no effect on the direction of Commercial Metals i.e., Commercial Metals and Cleveland Cliffs go up and down completely randomly.

Pair Corralation between Commercial Metals and Cleveland Cliffs

Considering the 90-day investment horizon Commercial Metals is expected to generate 0.64 times more return on investment than Cleveland Cliffs. However, Commercial Metals is 1.56 times less risky than Cleveland Cliffs. It trades about 0.1 of its potential returns per unit of risk. Cleveland Cliffs is currently generating about -0.01 per unit of risk. If you would invest  5,341  in Commercial Metals on August 30, 2024 and sell it today you would earn a total of  796.00  from holding Commercial Metals or generate 14.9% return on investment over 90 days.

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

Commercial Metals  vs.  Cleveland Cliffs

Commercial Metals

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial Metals are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, Commercial Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Cleveland Cliffs

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Commercial Metals and Cleveland Cliffs

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

The idea behind Commercial Metals and Cleveland Cliffs 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.