Correlation Between Steel Dynamics and Iron Road

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

By analyzing existing cross correlation between Steel Dynamics and Iron Road Limited, you can compare the effects of market volatilities on Steel Dynamics and Iron Road 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 Iron Road. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Iron Road.

Diversification Opportunities for Steel Dynamics and Iron Road

-0.07

Correlation Coefficient

Steel Dynamics  Iron Road

Good diversification

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

Pair Corralation between Steel Dynamics and Iron Road

Assuming the 90 days horizon Steel Dynamics is expected to generate 0.39 times more return on investment than Iron Road. However, Steel Dynamics is 2.57 times less risky than Iron Road. It trades about -0.53 of its potential returns per unit of risk. Iron Road Limited is currently generating about -0.27 per unit of risk. If you would invest  13,512  in Steel Dynamics on September 22, 2024 and sell it today you would lose (2,384) from holding Steel Dynamics or give up 17.64% of portfolio value over 90 days.

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

Steel Dynamics  vs.  Iron Road Limited

Steel Dynamics

Risk-Adjusted Performance

3 of 100

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 fragile basic indicators, Steel Dynamics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Iron Road Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iron Road Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Iron Road is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Steel Dynamics and Iron Road

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

The idea behind Steel Dynamics and Iron Road Limited 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.