Correlation Between STEEL DYNAMICS and Diageo PLC

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

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

Diversification Opportunities for STEEL DYNAMICS and Diageo PLC

-0.78

Correlation Coefficient

STEEL DYNAMICS  Diageo PLC

Pay attention - limited upside

The 3 months correlation between STEEL and Diageo is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding STEEL DYNAMICS and Diageo PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC 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 Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC has no effect on the direction of STEEL DYNAMICS i.e., STEEL DYNAMICS and Diageo PLC go up and down completely randomly.

Pair Corralation between STEEL DYNAMICS and Diageo PLC

Assuming the 90 days trading horizon STEEL DYNAMICS is expected to under-perform the Diageo PLC. In addition to that, STEEL DYNAMICS is 1.28 times more volatile than Diageo PLC. It trades about -0.71 of its total potential returns per unit of risk. Diageo PLC is currently generating about 0.14 per unit of volatility. If you would invest  11,600  in Diageo PLC on October 8, 2024 and sell it today you would earn a total of  300.00  from holding Diageo PLC or generate 2.59% return on investment over 90 days.

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

STEEL DYNAMICS  vs.  Diageo PLC

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.

Diageo PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Diageo PLC is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with STEEL DYNAMICS and Diageo PLC

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

The idea behind STEEL DYNAMICS and Diageo PLC 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.