Correlation Between IShares Trust and Steel Dynamics

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

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

Diversification Opportunities for IShares Trust and Steel Dynamics

0.32

Correlation Coefficient

IShares Trust  Steel Dynamics

Weak diversification

The 3 months correlation between IShares and Steel is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding iShares Trust and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and IShares Trust 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 iShares Trust 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 IShares Trust i.e., IShares Trust and Steel Dynamics go up and down completely randomly.

Pair Corralation between IShares Trust and Steel Dynamics

Assuming the 90 days trading horizon iShares Trust is expected to under-perform the Steel Dynamics. But the etf apears to be less risky and, when comparing its historical volatility, iShares Trust is 1.93 times less risky than Steel Dynamics. The etf trades about -0.17 of its potential returns per unit of risk. The Steel Dynamics is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  302,111  in Steel Dynamics on December 29, 2024 and sell it today you would lose (44,611) from holding Steel Dynamics or give up 14.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

iShares Trust   vs.  Steel Dynamics

iShares Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain fairly 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 ETF investors.

Steel Dynamics

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain fairly 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.

Pair Trading with IShares Trust and Steel Dynamics

The main advantage of trading using opposite IShares Trust and Steel Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Trust 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 iShares Trust 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.