Correlation Between Steel Dynamics and Automatic Data

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

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

Diversification Opportunities for Steel Dynamics and Automatic Data

0.79

Correlation Coefficient

Steel Dynamics  Automatic Data

Poor diversification

The 3 months correlation between Steel and Automatic is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing 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 Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Automatic Data go up and down completely randomly.

Pair Corralation between Steel Dynamics and Automatic Data

Assuming the 90 days horizon Steel Dynamics is expected to generate 1.54 times more return on investment than Automatic Data. However, Steel Dynamics is 1.54 times more volatile than Automatic Data Processing. It trades about 0.06 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.0 per unit of risk. If you would invest  10,933  in Steel Dynamics on December 30, 2024 and sell it today you would earn a total of  805.00  from holding Steel Dynamics or generate 7.36% return on investment over 90 days.

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

Steel Dynamics  vs.  Automatic Data Processing

Steel Dynamics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 4 (%) 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 April 2025.

Automatic Data Processing

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Steel Dynamics and Automatic Data

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

The idea behind Steel Dynamics and Automatic Data Processing 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.