Correlation Between Rayonier Advanced and Steel Dynamics

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

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

Diversification Opportunities for Rayonier Advanced and Steel Dynamics

0.18

Correlation Coefficient

Rayonier Advanced  Steel Dynamics

Average diversification

The 3 months correlation between Rayonier and Steel is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Rayonier Advanced Materials and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and Rayonier Advanced 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 Rayonier Advanced Materials 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 Rayonier Advanced i.e., Rayonier Advanced and Steel Dynamics go up and down completely randomly.

Pair Corralation between Rayonier Advanced and Steel Dynamics

Assuming the 90 days horizon Rayonier Advanced Materials is expected to under-perform the Steel Dynamics. In addition to that, Rayonier Advanced is 1.89 times more volatile than Steel Dynamics. It trades about -0.13 of its total potential returns per unit of risk. Steel Dynamics is currently generating about 0.05 per unit of volatility. If you would invest  10,959  in Steel Dynamics on December 22, 2024 and sell it today you would earn a total of  569.00  from holding Steel Dynamics or generate 5.19% return on investment over 90 days.

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

Rayonier Advanced Materials  vs.  Steel Dynamics

Rayonier Advanced

Risk-Adjusted Performance

Very Weak

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

Steel Dynamics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Steel Dynamics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Rayonier Advanced and Steel Dynamics

The main advantage of trading using opposite Rayonier Advanced and Steel Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rayonier Advanced 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 Rayonier Advanced Materials 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.