Correlation Between Steel Dynamics and Alger Smallcap

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

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

Diversification Opportunities for Steel Dynamics and Alger Smallcap

0.18

Correlation Coefficient

Steel Dynamics  Alger Smallcap

Average diversification

The 3 months correlation between Steel and Alger is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Alger Smallcap Growth in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alger Smallcap Growth 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 Alger Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alger Smallcap Growth has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Alger Smallcap go up and down completely randomly.

Pair Corralation between Steel Dynamics and Alger Smallcap

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.49 times more return on investment than Alger Smallcap. However, Steel Dynamics is 1.49 times more volatile than Alger Smallcap Growth. It trades about -0.04 of its potential returns per unit of risk. Alger Smallcap Growth is currently generating about -0.22 per unit of risk. If you would invest  14,422  in Steel Dynamics on December 1, 2024 and sell it today you would lose (915.00) from holding Steel Dynamics or give up 6.34% of portfolio value over 90 days.

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

Steel Dynamics  vs.  Alger Smallcap Growth

Steel Dynamics

Risk-Adjusted Performance

Very Weak

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

Alger Smallcap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alger Smallcap Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Steel Dynamics and Alger Smallcap

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

The idea behind Steel Dynamics and Alger Smallcap Growth 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.