Correlation Between Steel Dynamics and KBSTAR EURO

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

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

Diversification Opportunities for Steel Dynamics and KBSTAR EURO

0.75

Correlation Coefficient

Steel Dynamics  KBSTAR EURO

Poor diversification

The 3 months correlation between Steel and KBSTAR is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and KBSTAR EURO STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KBSTAR EURO STOXX 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 KBSTAR EURO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KBSTAR EURO STOXX has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and KBSTAR EURO go up and down completely randomly.

Pair Corralation between Steel Dynamics and KBSTAR EURO

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.03 times less return on investment than KBSTAR EURO. In addition to that, Steel Dynamics is 2.06 times more volatile than KBSTAR EURO STOXX. It trades about 0.08 of its total potential returns per unit of risk. KBSTAR EURO STOXX is currently generating about 0.17 per unit of volatility. If you would invest  1,351,500  in KBSTAR EURO STOXX on December 29, 2024 and sell it today you would earn a total of  142,000  from holding KBSTAR EURO STOXX or generate 10.51% return on investment over 90 days.

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

Steel Dynamics  vs.  KBSTAR EURO STOXX

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.

KBSTAR EURO STOXX

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in KBSTAR EURO STOXX are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, KBSTAR EURO may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Steel Dynamics and KBSTAR EURO

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

The idea behind Steel Dynamics and KBSTAR EURO STOXX 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.