Correlation Between Steel Dynamics and Brederode

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

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

Diversification Opportunities for Steel Dynamics and Brederode

-0.3

Correlation Coefficient

Steel Dynamics  Brederode

Very good diversification

The 3 months correlation between Steel and Brederode is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Brederode SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brederode SA 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 Brederode. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brederode SA has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Brederode go up and down completely randomly.

Pair Corralation between Steel Dynamics and Brederode

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Brederode. In addition to that, Steel Dynamics is 2.02 times more volatile than Brederode SA. It trades about -0.04 of its total potential returns per unit of risk. Brederode SA is currently generating about 0.15 per unit of volatility. If you would invest  10,500  in Brederode SA on December 2, 2024 and sell it today you would earn a total of  1,020  from holding Brederode SA or generate 9.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Steel Dynamics  vs.  Brederode SA

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.

Brederode SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brederode SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Brederode may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Steel Dynamics and Brederode

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

The idea behind Steel Dynamics and Brederode SA 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.