Correlation Between STEEL DYNAMICS and Snowflake

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

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

Diversification Opportunities for STEEL DYNAMICS and Snowflake

0.23

Correlation Coefficient

STEEL DYNAMICS  Snowflake

Modest diversification

The 3 months correlation between STEEL and Snowflake is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding STEEL DYNAMICS and Snowflake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Snowflake 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 Snowflake. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Snowflake has no effect on the direction of STEEL DYNAMICS i.e., STEEL DYNAMICS and Snowflake go up and down completely randomly.

Pair Corralation between STEEL DYNAMICS and Snowflake

Assuming the 90 days trading horizon STEEL DYNAMICS is expected to under-perform the Snowflake. But the stock apears to be less risky and, when comparing its historical volatility, STEEL DYNAMICS is 1.35 times less risky than Snowflake. The stock trades about -0.68 of its potential returns per unit of risk. The Snowflake is currently generating about -0.3 of returns per unit of risk over similar time horizon. If you would invest  17,244  in Snowflake on October 8, 2024 and sell it today you would lose (1,714) from holding Snowflake or give up 9.94% of portfolio value over 90 days.

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

STEEL DYNAMICS  vs.  Snowflake

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Snowflake

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Snowflake are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Snowflake reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with STEEL DYNAMICS and Snowflake

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

The idea behind STEEL DYNAMICS and Snowflake 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.