Correlation Between Nucor and POSCO Holdings

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

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

Diversification Opportunities for Nucor and POSCO Holdings

0.01

Correlation Coefficient

Nucor  POSCO Holdings

Significant diversification

The 3 months correlation between Nucor and POSCO is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Nucor and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO Holdings and Nucor 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 Nucor are associated (or correlated) with POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of Nucor i.e., Nucor and POSCO Holdings go up and down completely randomly.

Pair Corralation between Nucor and POSCO Holdings

Assuming the 90 days horizon Nucor is expected to generate 2.27 times less return on investment than POSCO Holdings. But when comparing it to its historical volatility, Nucor is 1.55 times less risky than POSCO Holdings. It trades about 0.01 of its potential returns per unit of risk. POSCO Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,861  in POSCO Holdings on September 22, 2024 and sell it today you would lose (621.00) from holding POSCO Holdings or give up 12.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.41%
Values	Daily Returns

Nucor  vs.  POSCO Holdings

Nucor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nucor 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

POSCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days POSCO Holdings 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Nucor and POSCO Holdings

The main advantage of trading using opposite Nucor and POSCO Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nucor position performs unexpectedly, POSCO Holdings 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 POSCO Holdings will offset losses from the drop in POSCO Holdings' long position.

The idea behind Nucor and POSCO Holdings 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.