Correlation Between Steel Dynamics and EA Series

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

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

Diversification Opportunities for Steel Dynamics and EA Series

0.41

Correlation Coefficient

Steel Dynamics  EA Series

Very weak diversification

The 3 months correlation between Steel and CCMG is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and EA Series Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EA Series Trust 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 EA Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EA Series Trust has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and EA Series go up and down completely randomly.

Pair Corralation between Steel Dynamics and EA Series

Given the investment horizon of 90 days Steel Dynamics is expected to generate 5.65 times more return on investment than EA Series. However, Steel Dynamics is 5.65 times more volatile than EA Series Trust. It trades about 0.13 of its potential returns per unit of risk. EA Series Trust is currently generating about 0.24 per unit of risk. If you would invest  13,358  in Steel Dynamics on September 4, 2024 and sell it today you would earn a total of  1,123  from holding Steel Dynamics or generate 8.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Steel Dynamics  vs.  EA Series Trust

Steel Dynamics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 13 (%) 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.

EA Series Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in EA Series Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, EA Series is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Steel Dynamics and EA Series

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

The idea behind Steel Dynamics and EA Series Trust 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.