Correlation Between Steel Dynamics and Vertical Exploration

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

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

Diversification Opportunities for Steel Dynamics and Vertical Exploration

0.7

Correlation Coefficient

Steel Dynamics  Vertical Exploration

Poor diversification

The 3 months correlation between Steel and Vertical is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Vertical Exploration in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vertical Exploration 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 Vertical Exploration. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vertical Exploration has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Vertical Exploration go up and down completely randomly.

Pair Corralation between Steel Dynamics and Vertical Exploration

Given the investment horizon of 90 days Steel Dynamics is expected to generate 20.86 times more return on investment than Vertical Exploration. However, Steel Dynamics is 20.86 times more volatile than Vertical Exploration. It trades about 0.08 of its potential returns per unit of risk. Vertical Exploration is currently generating about 0.13 per unit of risk. If you would invest  11,334  in Steel Dynamics on December 29, 2024 and sell it today you would earn a total of  1,063  from holding Steel Dynamics or generate 9.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.31%
Values	Daily Returns

Steel Dynamics  vs.  Vertical Exploration

Steel Dynamics

Risk-Adjusted Performance

Modest

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.

Vertical Exploration

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vertical Exploration are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vertical Exploration is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Steel Dynamics and Vertical Exploration

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

The idea behind Steel Dynamics and Vertical Exploration 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.