Correlation Between Steel Dynamics and Airbus Group

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

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

Diversification Opportunities for Steel Dynamics and Airbus Group

0.6

Correlation Coefficient

Steel Dynamics  Airbus Group

Poor diversification

The 3 months correlation between Steel and Airbus is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Airbus Group SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Airbus Group SE 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 Airbus Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Airbus Group SE has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Airbus Group go up and down completely randomly.

Pair Corralation between Steel Dynamics and Airbus Group

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.71 times more return on investment than Airbus Group. However, Steel Dynamics is 1.71 times more volatile than Airbus Group SE. It trades about 0.16 of its potential returns per unit of risk. Airbus Group SE is currently generating about 0.2 per unit of risk. If you would invest  10,834  in Steel Dynamics on September 10, 2024 and sell it today you would earn a total of  2,856  from holding Steel Dynamics or generate 26.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.97%
Values	Daily Returns

Steel Dynamics  vs.  Airbus Group SE

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.

Airbus Group SE

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Airbus Group SE are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Airbus Group sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Airbus Group

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

The idea behind Steel Dynamics and Airbus Group SE 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 CEOs Directory module to screen CEOs from public companies around the world.