Correlation Between Steel Dynamics and Gold Portfolio

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

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

Diversification Opportunities for Steel Dynamics and Gold Portfolio

0.66

Correlation Coefficient

Steel Dynamics  Gold Portfolio

Poor diversification

The 3 months correlation between Steel and Gold is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Gold Portfolio Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gold Portfolio Gold 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 Gold Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gold Portfolio Gold has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Gold Portfolio go up and down completely randomly.

Pair Corralation between Steel Dynamics and Gold Portfolio

Given the investment horizon of 90 days Steel Dynamics is expected to generate 2.32 times less return on investment than Gold Portfolio. In addition to that, Steel Dynamics is 1.32 times more volatile than Gold Portfolio Gold. It trades about 0.09 of its total potential returns per unit of risk. Gold Portfolio Gold is currently generating about 0.28 per unit of volatility. If you would invest  2,481  in Gold Portfolio Gold on December 27, 2024 and sell it today you would earn a total of  738.00  from holding Gold Portfolio Gold or generate 29.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Steel Dynamics  vs.  Gold Portfolio Gold

Steel Dynamics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Gold Portfolio Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Gold Portfolio Gold are ranked lower than 21 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Gold Portfolio showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Gold Portfolio

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

The idea behind Steel Dynamics and Gold Portfolio Gold 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.