Correlation Between Steel Dynamics and Dell Technologies

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

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

Diversification Opportunities for Steel Dynamics and Dell Technologies

0.41

Correlation Coefficient

Steel Dynamics  Dell Technologies

Very weak diversification

The 3 months correlation between Steel and Dell is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Dell Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dell Technologies and Steel Dynamics 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 Steel Dynamics are associated (or correlated) with Dell Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dell Technologies has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Dell Technologies go up and down completely randomly.

Pair Corralation between Steel Dynamics and Dell Technologies

Assuming the 90 days horizon Steel Dynamics is expected to generate 0.61 times more return on investment than Dell Technologies. However, Steel Dynamics is 1.63 times less risky than Dell Technologies. It trades about -0.05 of its potential returns per unit of risk. Dell Technologies is currently generating about -0.09 per unit of risk. If you would invest  13,743  in Steel Dynamics on December 2, 2024 and sell it today you would lose (1,037) from holding Steel Dynamics or give up 7.55% of portfolio value over 90 days.

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

Steel Dynamics  vs.  Dell Technologies

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. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Dell Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dell Technologies 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 fundamental 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.

Pair Trading with Steel Dynamics and Dell Technologies

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

The idea behind Steel Dynamics and Dell Technologies 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.