Correlation Between PT Steel and STEEL DYNAMICS

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

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

Diversification Opportunities for PT Steel and STEEL DYNAMICS

-0.19

Correlation Coefficient

PT Steel  STEEL DYNAMICS

Good diversification

The 3 months correlation between S08 and STEEL is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding PT Steel Pipe and STEEL DYNAMICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STEEL DYNAMICS and PT 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 PT Steel Pipe 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 PT Steel i.e., PT Steel and STEEL DYNAMICS go up and down completely randomly.

Pair Corralation between PT Steel and STEEL DYNAMICS

Assuming the 90 days horizon PT Steel Pipe is expected to generate 5.66 times more return on investment than STEEL DYNAMICS. However, PT Steel is 5.66 times more volatile than STEEL DYNAMICS. It trades about 0.13 of its potential returns per unit of risk. STEEL DYNAMICS is currently generating about -0.43 per unit of risk. If you would invest  1.25  in PT Steel Pipe on October 9, 2024 and sell it today you would earn a total of  0.20  from holding PT Steel Pipe or generate 16.0% return on investment over 90 days.

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

PT Steel Pipe  vs.  STEEL DYNAMICS

PT Steel Pipe

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PT Steel Pipe are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PT Steel reported solid returns over the last few months and may actually be approaching a breakup point.

STEEL DYNAMICS

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, STEEL 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 PT Steel and STEEL DYNAMICS

The main advantage of trading using opposite PT Steel and STEEL DYNAMICS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PT Steel 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's long position.

The idea behind PT Steel Pipe 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.