Correlation Between STEEL DYNAMICS and Newtek Business

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

By analyzing existing cross correlation between STEEL DYNAMICS and Newtek Business Services, you can compare the effects of market volatilities on STEEL DYNAMICS and Newtek Business 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 Newtek Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of STEEL DYNAMICS and Newtek Business.

Diversification Opportunities for STEEL DYNAMICS and Newtek Business

0.63

Correlation Coefficient

STEEL DYNAMICS  Newtek Business

Poor diversification

The 3 months correlation between STEEL and Newtek is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding STEEL DYNAMICS and Newtek Business Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newtek Business Services 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 Newtek Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newtek Business Services has no effect on the direction of STEEL DYNAMICS i.e., STEEL DYNAMICS and Newtek Business go up and down completely randomly.

Pair Corralation between STEEL DYNAMICS and Newtek Business

Assuming the 90 days trading horizon STEEL DYNAMICS is expected to under-perform the Newtek Business. In addition to that, STEEL DYNAMICS is 1.02 times more volatile than Newtek Business Services. It trades about -0.43 of its total potential returns per unit of risk. Newtek Business Services is currently generating about -0.17 per unit of volatility. If you would invest  1,298  in Newtek Business Services on October 10, 2024 and sell it today you would lose (70.00) from holding Newtek Business Services or give up 5.39% of portfolio value over 90 days.

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

STEEL DYNAMICS  vs.  Newtek Business Services

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.

Newtek Business Services

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Newtek Business Services are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Newtek Business reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STEEL DYNAMICS and Newtek Business

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

The idea behind STEEL DYNAMICS and Newtek Business Services 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.