Correlation Between Olympic Steel and General Dynamics

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

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

Diversification Opportunities for Olympic Steel and General Dynamics

-0.07

Correlation Coefficient

Olympic Steel  General Dynamics

Good diversification

The 3 months correlation between Olympic and General is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Olympic Steel and General Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on General Dynamics and Olympic Steel 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 Olympic Steel are associated (or correlated) with General Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of General Dynamics has no effect on the direction of Olympic Steel i.e., Olympic Steel and General Dynamics go up and down completely randomly.

Pair Corralation between Olympic Steel and General Dynamics

Assuming the 90 days trading horizon Olympic Steel is expected to generate 1.87 times more return on investment than General Dynamics. However, Olympic Steel is 1.87 times more volatile than General Dynamics. It trades about -0.02 of its potential returns per unit of risk. General Dynamics is currently generating about -0.04 per unit of risk. If you would invest  3,205  in Olympic Steel on December 23, 2024 and sell it today you would lose (145.00) from holding Olympic Steel or give up 4.52% of portfolio value over 90 days.

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

Olympic Steel  vs.  General Dynamics

Olympic Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days Olympic Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Olympic Steel is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

General Dynamics

Risk-Adjusted Performance

Very Weak

Over the last 90 days General Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, General Dynamics is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Olympic Steel and General Dynamics

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

The idea behind Olympic Steel and General 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.