Correlation Between Companhia Siderrgica and Steel Dynamics

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

By analyzing existing cross correlation between Companhia Siderrgica Nacional and Steel Dynamics, you can compare the effects of market volatilities on Companhia Siderrgica and Steel Dynamics 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 Companhia Siderrgica with a short position of Steel Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia Siderrgica and Steel Dynamics.

Diversification Opportunities for Companhia Siderrgica and Steel Dynamics

0.47

Correlation Coefficient

Companhia Siderrgica  Steel Dynamics

Very weak diversification

The 3 months correlation between Companhia and Steel is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Siderrgica Nacional and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and Companhia Siderrgica 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 Companhia Siderrgica Nacional are associated (or correlated) with Steel Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Dynamics has no effect on the direction of Companhia Siderrgica i.e., Companhia Siderrgica and Steel Dynamics go up and down completely randomly.

Pair Corralation between Companhia Siderrgica and Steel Dynamics

Assuming the 90 days trading horizon Companhia Siderrgica Nacional is expected to under-perform the Steel Dynamics. In addition to that, Companhia Siderrgica is 1.53 times more volatile than Steel Dynamics. It trades about -0.04 of its total potential returns per unit of risk. Steel Dynamics is currently generating about -0.05 per unit of volatility. If you would invest  302,111  in Steel Dynamics on December 2, 2024 and sell it today you would lose (27,100) from holding Steel Dynamics or give up 8.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Companhia Siderrgica Nacional  vs.  Steel Dynamics

Companhia Siderrgica

Risk-Adjusted Performance

Very Weak

Over the last 90 days Companhia Siderrgica Nacional has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Steel Dynamics

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Companhia Siderrgica and Steel Dynamics

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

The idea behind Companhia Siderrgica Nacional and Steel Dynamics 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.