Correlation Between Steel Dynamics and EBay

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

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

Diversification Opportunities for Steel Dynamics and EBay

-0.03

Correlation Coefficient

Steel Dynamics  EBay

Good diversification

The 3 months correlation between Steel and EBay is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and eBay Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on eBay Inc 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 EBay. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of eBay Inc has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and EBay go up and down completely randomly.

Pair Corralation between Steel Dynamics and EBay

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the EBay. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 1.18 times less risky than EBay. The stock trades about -0.04 of its potential returns per unit of risk. The eBay Inc is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,956  in eBay Inc on December 2, 2024 and sell it today you would earn a total of  135.00  from holding eBay Inc or generate 2.27% return on investment over 90 days.

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

Steel Dynamics  vs.  eBay Inc

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.

eBay Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in eBay Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, EBay 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 EBay

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

The idea behind Steel Dynamics and eBay Inc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.