Correlation Between Hufvudstaden and STEEL DYNAMICS

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

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

Diversification Opportunities for Hufvudstaden and STEEL DYNAMICS

-0.27

Correlation Coefficient

Hufvudstaden  STEEL DYNAMICS

Very good diversification

The 3 months correlation between Hufvudstaden and STEEL is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Hufvudstaden AB and STEEL DYNAMICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEEL DYNAMICS and Hufvudstaden 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 Hufvudstaden AB 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 Hufvudstaden i.e., Hufvudstaden and STEEL DYNAMICS go up and down completely randomly.

Pair Corralation between Hufvudstaden and STEEL DYNAMICS

Assuming the 90 days trading horizon Hufvudstaden AB is expected to generate 1.15 times more return on investment than STEEL DYNAMICS. However, Hufvudstaden is 1.15 times more volatile than STEEL DYNAMICS. It trades about 0.04 of its potential returns per unit of risk. STEEL DYNAMICS is currently generating about 0.03 per unit of risk. If you would invest  886.00  in Hufvudstaden AB on October 9, 2024 and sell it today you would earn a total of  151.00  from holding Hufvudstaden AB or generate 17.04% return on investment over 90 days.

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

Hufvudstaden AB  vs.  STEEL DYNAMICS

Hufvudstaden AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hufvudstaden AB 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 February 2025. The current disturbance may also be a sign of long-run up-swing 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hufvudstaden and STEEL DYNAMICS

The main advantage of trading using opposite Hufvudstaden and STEEL DYNAMICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hufvudstaden 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 Hufvudstaden AB 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.