Correlation Between Steel Dynamics and IMPERIAL TOBACCO

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

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

Diversification Opportunities for Steel Dynamics and IMPERIAL TOBACCO

0.5

Correlation Coefficient

Steel Dynamics  IMPERIAL TOBACCO

Very weak diversification

The 3 months correlation between Steel and IMPERIAL is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and IMPERIAL TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IMPERIAL TOBACCO 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 IMPERIAL TOBACCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IMPERIAL TOBACCO has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and IMPERIAL TOBACCO go up and down completely randomly.

Pair Corralation between Steel Dynamics and IMPERIAL TOBACCO

Assuming the 90 days horizon Steel Dynamics is expected to generate 1.27 times less return on investment than IMPERIAL TOBACCO. In addition to that, Steel Dynamics is 2.35 times more volatile than IMPERIAL TOBACCO . It trades about 0.06 of its total potential returns per unit of risk. IMPERIAL TOBACCO is currently generating about 0.18 per unit of volatility. If you would invest  3,016  in IMPERIAL TOBACCO on December 30, 2024 and sell it today you would earn a total of  338.00  from holding IMPERIAL TOBACCO or generate 11.21% return on investment over 90 days.

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

Steel Dynamics  vs.  IMPERIAL TOBACCO

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.

IMPERIAL TOBACCO

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, IMPERIAL TOBACCO may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Steel Dynamics and IMPERIAL TOBACCO

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

The idea behind Steel Dynamics and IMPERIAL TOBACCO 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.