Correlation Between Industrias and Steel Dynamics

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

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

Diversification Opportunities for Industrias and Steel Dynamics

-0.71

Correlation Coefficient

Industrias  Steel Dynamics

Pay attention - limited upside

The 3 months correlation between Industrias and Steel is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Industrias CH S and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and Industrias 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 Industrias CH S 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 Industrias i.e., Industrias and Steel Dynamics go up and down completely randomly.

Pair Corralation between Industrias and Steel Dynamics

Assuming the 90 days trading horizon Industrias CH S is expected to under-perform the Steel Dynamics. But the stock apears to be less risky and, when comparing its historical volatility, Industrias CH S is 5.15 times less risky than Steel Dynamics. The stock trades about -0.02 of its potential returns per unit of risk. The Steel Dynamics is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  208,095  in Steel Dynamics on September 27, 2024 and sell it today you would earn a total of  94,972  from holding Steel Dynamics or generate 45.64% return on investment over 90 days.

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

Industrias CH S  vs.  Steel Dynamics

Industrias CH S

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Industrias CH S has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Industrias is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Steel Dynamics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Steel Dynamics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrias and Steel Dynamics

The main advantage of trading using opposite Industrias and Steel Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrias 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 Industrias CH S 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.