Correlation Between Steel Dynamics and Ferrexpo PLC

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

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

Diversification Opportunities for Steel Dynamics and Ferrexpo PLC

-0.2

Correlation Coefficient

Steel Dynamics  Ferrexpo PLC

Good diversification

The 3 months correlation between Steel and Ferrexpo is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Ferrexpo PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrexpo PLC 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 Ferrexpo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferrexpo PLC has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Ferrexpo PLC go up and down completely randomly.

Pair Corralation between Steel Dynamics and Ferrexpo PLC

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Ferrexpo PLC. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 4.36 times less risky than Ferrexpo PLC. The stock trades about -0.01 of its potential returns per unit of risk. The Ferrexpo PLC is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  74.00  in Ferrexpo PLC on October 24, 2024 and sell it today you would earn a total of  48.00  from holding Ferrexpo PLC or generate 64.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.16%
Values	Daily Returns

Steel Dynamics  vs.  Ferrexpo PLC

Steel Dynamics

Risk-Adjusted Performance

0 of 100

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.

Ferrexpo PLC

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ferrexpo PLC are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ferrexpo PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Ferrexpo PLC

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

The idea behind Steel Dynamics and Ferrexpo PLC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.