Correlation Between Steel Dynamics and Frasers Property

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

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

Diversification Opportunities for Steel Dynamics and Frasers Property

-0.69

Correlation Coefficient

Steel Dynamics  Frasers Property

Excellent diversification

The 3 months correlation between Steel and Frasers is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Frasers Property Public in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frasers Property Public 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 Frasers Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frasers Property Public has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Frasers Property go up and down completely randomly.

Pair Corralation between Steel Dynamics and Frasers Property

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.66 times more return on investment than Frasers Property. However, Steel Dynamics is 1.66 times more volatile than Frasers Property Public. It trades about 0.17 of its potential returns per unit of risk. Frasers Property Public is currently generating about -0.06 per unit of risk. If you would invest  11,091  in Steel Dynamics on September 5, 2024 and sell it today you would earn a total of  3,229  from holding Steel Dynamics or generate 29.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Steel Dynamics  vs.  Frasers Property Public

Steel Dynamics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Frasers Property Public

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frasers Property Public has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Frasers Property is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Steel Dynamics and Frasers Property

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

The idea behind Steel Dynamics and Frasers Property Public 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.