Correlation Between Steel Dynamics and Industrias

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

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

Diversification Opportunities for Steel Dynamics and Industrias

-0.48

Correlation Coefficient

Steel Dynamics  Industrias

Very good diversification

The 3 months correlation between Steel and Industrias is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Industrias CH S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Industrias CH S 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 Industrias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Industrias CH S has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Industrias go up and down completely randomly.

Pair Corralation between Steel Dynamics and Industrias

Assuming the 90 days trading horizon Steel Dynamics is expected to generate 0.05 times more return on investment than Industrias. However, Steel Dynamics is 20.27 times less risky than Industrias. It trades about 0.24 of its potential returns per unit of risk. Industrias CH S is currently generating about -0.06 per unit of risk. If you would invest  302,111  in Steel Dynamics on October 15, 2024 and sell it today you would earn a total of  956.00  from holding Steel Dynamics or generate 0.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Steel Dynamics  vs.  Industrias CH S

Steel Dynamics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Steel Dynamics showed solid returns over the last few months and may actually be approaching a breakup point.

Industrias CH S

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Industrias CH S 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 Steel Dynamics and Industrias

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

The idea behind Steel Dynamics and Industrias CH S 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.