Correlation Between Steel Dynamics and HS Valve

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

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

Diversification Opportunities for Steel Dynamics and HS Valve

-0.09

Correlation Coefficient

Steel Dynamics  HS Valve

Good diversification

The 3 months correlation between Steel and 039610 is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and HS Valve Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HS Valve 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 HS Valve. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HS Valve has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and HS Valve go up and down completely randomly.

Pair Corralation between Steel Dynamics and HS Valve

Given the investment horizon of 90 days Steel Dynamics is expected to generate 3.45 times less return on investment than HS Valve. But when comparing it to its historical volatility, Steel Dynamics is 2.61 times less risky than HS Valve. It trades about 0.08 of its potential returns per unit of risk. HS Valve Co is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  739,000  in HS Valve Co on December 30, 2024 and sell it today you would earn a total of  215,000  from holding HS Valve Co or generate 29.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.16%
Values	Daily Returns

Steel Dynamics  vs.  HS Valve Co

Steel Dynamics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

HS Valve

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in HS Valve Co are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, HS Valve sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and HS Valve

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

The idea behind Steel Dynamics and HS Valve 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.