Correlation Between Steel Dynamics and Frontier Lithium
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Frontier Lithium 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 Frontier Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Frontier Lithium, you can compare the effects of market volatilities on Steel Dynamics and Frontier Lithium 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 Frontier Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Frontier Lithium.
Diversification Opportunities for Steel Dynamics and Frontier Lithium
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Steel and Frontier is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Frontier Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontier Lithium 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 Frontier Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontier Lithium has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Frontier Lithium go up and down completely randomly.
Pair Corralation between Steel Dynamics and Frontier Lithium
Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Frontier Lithium. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 2.03 times less risky than Frontier Lithium. The stock trades about -0.04 of its potential returns per unit of risk. The Frontier Lithium is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 53.00 in Frontier Lithium on December 2, 2024 and sell it today you would earn a total of 10.00 from holding Frontier Lithium or generate 18.87% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 98.39% |
Values | Daily Returns |
Steel Dynamics vs. Frontier Lithium
Performance |
Timeline |
Steel Dynamics |
Frontier Lithium |
Steel Dynamics and Frontier Lithium Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Steel Dynamics and Frontier Lithium
The main advantage of trading using opposite Steel Dynamics and Frontier Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Frontier Lithium 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 Frontier Lithium will offset losses from the drop in Frontier Lithium's long position.Steel Dynamics vs. Cleveland Cliffs | Steel Dynamics vs. United States Steel | Steel Dynamics vs. ArcelorMittal SA ADR | Steel Dynamics vs. Reliance Steel Aluminum |
Frontier Lithium vs. Critical Elements | Frontier Lithium vs. Rock Tech Lithium | Frontier Lithium vs. American Lithium Corp | Frontier Lithium vs. American Manganese |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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