Correlation Between Steel Dynamics and Century Small

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

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

Diversification Opportunities for Steel Dynamics and Century Small

0.84

Correlation Coefficient

Steel Dynamics  Century Small

Very poor diversification

The 3 months correlation between Steel and Century is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Century Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Small Cap 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 Century Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Small Cap has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Century Small go up and down completely randomly.

Pair Corralation between Steel Dynamics and Century Small

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Century Small. In addition to that, Steel Dynamics is 1.34 times more volatile than Century Small Cap. It trades about -0.28 of its total potential returns per unit of risk. Century Small Cap is currently generating about 0.02 per unit of volatility. If you would invest  4,947  in Century Small Cap on September 9, 2024 and sell it today you would earn a total of  18.00  from holding Century Small Cap or generate 0.36% return on investment over 90 days.

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

Steel Dynamics  vs.  Century Small Cap

Steel Dynamics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 11 (%) 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.

Century Small Cap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Small Cap are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Century Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Century Small

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

The idea behind Steel Dynamics and Century Small Cap 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.