Correlation Between IPC MEXICO and Steel Dynamics

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

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

Diversification Opportunities for IPC MEXICO and Steel Dynamics

-0.65

Correlation Coefficient

IPC MEXICO  Steel Dynamics

Excellent diversification

The 3 months correlation between IPC and Steel is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and IPC MEXICO 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 IPC MEXICO 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 IPC MEXICO i.e., IPC MEXICO and Steel Dynamics go up and down completely randomly.

Pair Corralation between IPC MEXICO and Steel Dynamics

Assuming the 90 days trading horizon IPC MEXICO is expected to generate 0.23 times more return on investment than Steel Dynamics. However, IPC MEXICO is 4.37 times less risky than Steel Dynamics. It trades about 0.09 of its potential returns per unit of risk. Steel Dynamics is currently generating about -0.22 per unit of risk. If you would invest  4,931,662  in IPC MEXICO on October 22, 2024 and sell it today you would earn a total of  61,449  from holding IPC MEXICO or generate 1.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

IPC MEXICO  vs.  Steel Dynamics

Pair Trading with IPC MEXICO and Steel Dynamics

The main advantage of trading using opposite IPC MEXICO and Steel Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPC MEXICO 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 IPC MEXICO 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.