Correlation Between Steel Dynamics and VanEck Africa

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

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

Diversification Opportunities for Steel Dynamics and VanEck Africa

0.72

Correlation Coefficient

Steel Dynamics  VanEck Africa

Poor diversification

The 3 months correlation between Steel and VanEck is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and VanEck Africa Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Africa Index 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 VanEck Africa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Africa Index has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and VanEck Africa go up and down completely randomly.

Pair Corralation between Steel Dynamics and VanEck Africa

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.93 times more return on investment than VanEck Africa. However, Steel Dynamics is 1.93 times more volatile than VanEck Africa Index. It trades about 0.09 of its potential returns per unit of risk. VanEck Africa Index is currently generating about 0.17 per unit of risk. If you would invest  11,530  in Steel Dynamics on December 27, 2024 and sell it today you would earn a total of  1,269  from holding Steel Dynamics or generate 11.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Steel Dynamics  vs.  VanEck Africa Index

Steel Dynamics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 7 (%) 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.

VanEck Africa Index

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Africa Index are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, VanEck Africa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Steel Dynamics and VanEck Africa

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

The idea behind Steel Dynamics and VanEck Africa Index 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.