Correlation Between Steel Dynamics and Arlington Asset

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

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

Diversification Opportunities for Steel Dynamics and Arlington Asset

0.84

Correlation Coefficient

Steel Dynamics  Arlington Asset

Very poor diversification

The 3 months correlation between Steel and Arlington is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Arlington Asset Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arlington Asset Inve 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 Arlington Asset. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arlington Asset Inve has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Arlington Asset go up and down completely randomly.

Pair Corralation between Steel Dynamics and Arlington Asset

If you would invest  11,034  in Steel Dynamics on September 7, 2024 and sell it today you would earn a total of  2,836  from holding Steel Dynamics or generate 25.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	1.59%
Values	Daily Returns

Steel Dynamics  vs.  Arlington Asset Investment

Steel Dynamics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 12 (%) 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.

Arlington Asset Inve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arlington Asset Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Arlington Asset is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Steel Dynamics and Arlington Asset

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

The idea behind Steel Dynamics and Arlington Asset Investment 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 Transaction History module to view history of all your transactions and understand their impact on performance.