Correlation Between Steel Dynamics and Shenzhen MTC

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

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

Diversification Opportunities for Steel Dynamics and Shenzhen MTC

0.7

Correlation Coefficient

Steel Dynamics  Shenzhen MTC

Poor diversification

The 3 months correlation between Steel and Shenzhen is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Shenzhen MTC Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shenzhen MTC 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 Shenzhen MTC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shenzhen MTC has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Shenzhen MTC go up and down completely randomly.

Pair Corralation between Steel Dynamics and Shenzhen MTC

Given the investment horizon of 90 days Steel Dynamics is expected to generate 0.8 times more return on investment than Shenzhen MTC. However, Steel Dynamics is 1.25 times less risky than Shenzhen MTC. It trades about 0.17 of its potential returns per unit of risk. Shenzhen MTC Co is currently generating about 0.07 per unit of risk. If you would invest  11,354  in Steel Dynamics on September 3, 2024 and sell it today you would earn a total of  3,173  from holding Steel Dynamics or generate 27.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.63%
Values	Daily Returns

Steel Dynamics  vs.  Shenzhen MTC Co

Steel Dynamics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Shenzhen MTC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Shenzhen MTC Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Shenzhen MTC sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Shenzhen MTC

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

The idea behind Steel Dynamics and Shenzhen MTC Co 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.