Correlation Between New Gold and Steel Dynamics

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

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

Diversification Opportunities for New Gold and Steel Dynamics

0.56

Correlation Coefficient

New Gold  Steel Dynamics

Very weak diversification

The 3 months correlation between New and Steel is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding New Gold and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and New Gold 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 New Gold 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 New Gold i.e., New Gold and Steel Dynamics go up and down completely randomly.

Pair Corralation between New Gold and Steel Dynamics

Considering the 90-day investment horizon New Gold is expected to generate 1.63 times more return on investment than Steel Dynamics. However, New Gold is 1.63 times more volatile than Steel Dynamics. It trades about 0.07 of its potential returns per unit of risk. Steel Dynamics is currently generating about 0.01 per unit of risk. If you would invest  167.00  in New Gold on December 5, 2024 and sell it today you would earn a total of  101.00  from holding New Gold or generate 60.48% return on investment over 90 days.

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

New Gold  vs.  Steel Dynamics

New Gold

Risk-Adjusted Performance

Very Weak

Over the last 90 days New Gold has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, New Gold is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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 latest fragile performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with New Gold and Steel Dynamics

The main advantage of trading using opposite New Gold and Steel Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Gold 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 New Gold 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.