Correlation Between Steel Dynamics and GS Engineering

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

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

Diversification Opportunities for Steel Dynamics and GS Engineering

0.53

Correlation Coefficient

Steel Dynamics  GS Engineering

Very weak diversification

The 3 months correlation between Steel and 006360 is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and GS Engineering Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GS Engineering Const 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 GS Engineering. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GS Engineering Const has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and GS Engineering go up and down completely randomly.

Pair Corralation between Steel Dynamics and GS Engineering

Given the investment horizon of 90 days Steel Dynamics is expected to generate 0.78 times more return on investment than GS Engineering. However, Steel Dynamics is 1.28 times less risky than GS Engineering. It trades about -0.04 of its potential returns per unit of risk. GS Engineering Construction is currently generating about -0.04 per unit of risk. If you would invest  14,422  in Steel Dynamics on December 2, 2024 and sell it today you would lose (915.00) from holding Steel Dynamics or give up 6.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

Steel Dynamics  vs.  GS Engineering Construction

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 rather sound essential indicators, Steel Dynamics is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

GS Engineering Const

Risk-Adjusted Performance

Very Weak

Over the last 90 days GS Engineering Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, GS Engineering is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Steel Dynamics and GS Engineering

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

The idea behind Steel Dynamics and GS Engineering Construction 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.