Correlation Between Mount Gibson and STEEL DYNAMICS

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

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

Diversification Opportunities for Mount Gibson and STEEL DYNAMICS

0.17

Correlation Coefficient

Mount Gibson  STEEL DYNAMICS

Average diversification

The 3 months correlation between Mount and STEEL is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Mount Gibson Iron and STEEL DYNAMICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEEL DYNAMICS and Mount Gibson 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 Mount Gibson Iron 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 Mount Gibson i.e., Mount Gibson and STEEL DYNAMICS go up and down completely randomly.

Pair Corralation between Mount Gibson and STEEL DYNAMICS

Assuming the 90 days horizon Mount Gibson Iron is expected to generate 1.55 times more return on investment than STEEL DYNAMICS. However, Mount Gibson is 1.55 times more volatile than STEEL DYNAMICS. It trades about -0.1 of its potential returns per unit of risk. STEEL DYNAMICS is currently generating about -0.43 per unit of risk. If you would invest  18.00  in Mount Gibson Iron on October 10, 2024 and sell it today you would lose (1.00) from holding Mount Gibson Iron or give up 5.56% of portfolio value over 90 days.

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

Mount Gibson Iron  vs.  STEEL DYNAMICS

Mount Gibson Iron

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mount Gibson Iron has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Mount Gibson and STEEL DYNAMICS

The main advantage of trading using opposite Mount Gibson and STEEL DYNAMICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mount Gibson 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 Mount Gibson Iron 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.