Correlation Between Steel Dynamics and Scepter Holdings

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

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

Diversification Opportunities for Steel Dynamics and Scepter Holdings

0.26

Correlation Coefficient

Steel Dynamics  Scepter Holdings

Modest diversification

The 3 months correlation between Steel and Scepter is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Scepter Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scepter Holdings 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 Scepter Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scepter Holdings has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Scepter Holdings go up and down completely randomly.

Pair Corralation between Steel Dynamics and Scepter Holdings

Given the investment horizon of 90 days Steel Dynamics is expected to generate 17.39 times less return on investment than Scepter Holdings. But when comparing it to its historical volatility, Steel Dynamics is 7.68 times less risky than Scepter Holdings. It trades about 0.08 of its potential returns per unit of risk. Scepter Holdings is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  0.10  in Scepter Holdings on December 28, 2024 and sell it today you would earn a total of  0.17  from holding Scepter Holdings or generate 170.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Steel Dynamics  vs.  Scepter Holdings

Steel Dynamics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 6 (%) 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.

Scepter Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Scepter Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Scepter Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Scepter Holdings

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

The idea behind Steel Dynamics and Scepter Holdings 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.