Correlation Between Steel Dynamics and First National

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

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

Diversification Opportunities for Steel Dynamics and First National

-0.1

Correlation Coefficient

Steel Dynamics  First National

Good diversification

The 3 months correlation between Steel and First is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and First National Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First National Financial 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 First National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First National Financial has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and First National go up and down completely randomly.

Pair Corralation between Steel Dynamics and First National

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the First National. In addition to that, Steel Dynamics is 1.21 times more volatile than First National Financial. It trades about -0.04 of its total potential returns per unit of risk. First National Financial is currently generating about 0.03 per unit of volatility. If you would invest  1,480  in First National Financial on December 2, 2024 and sell it today you would earn a total of  35.00  from holding First National Financial or generate 2.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Steel Dynamics  vs.  First National Financial

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.

First National Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First National Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, First National is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Steel Dynamics and First National

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

The idea behind Steel Dynamics and First National Financial 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.