Correlation Between Steel Dynamics and IShares China

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

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

Diversification Opportunities for Steel Dynamics and IShares China

0.45

Correlation Coefficient

Steel Dynamics  IShares China

Very weak diversification

The 3 months correlation between Steel and IShares is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and iShares China Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares China Large 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 IShares China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares China Large has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and IShares China go up and down completely randomly.

Pair Corralation between Steel Dynamics and IShares China

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.11 times less return on investment than IShares China. But when comparing it to its historical volatility, Steel Dynamics is 1.11 times less risky than IShares China. It trades about 0.12 of its potential returns per unit of risk. iShares China Large is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  7,298  in iShares China Large on September 13, 2024 and sell it today you would earn a total of  1,532  from holding iShares China Large or generate 20.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Steel Dynamics  vs.  iShares China Large

Steel Dynamics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 9 (%) 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.

iShares China Large

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares China Large are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental indicators, IShares China showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and IShares China

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

The idea behind Steel Dynamics and iShares China Large 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.