Correlation Between Steel Dynamics and Secured Options

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

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

Diversification Opportunities for Steel Dynamics and Secured Options

0.6

Correlation Coefficient

Steel Dynamics  Secured Options

Poor diversification

The 3 months correlation between Steel and Secured is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Secured Options Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Secured Options Portfolio 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 Secured Options. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Secured Options Portfolio has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Secured Options go up and down completely randomly.

Pair Corralation between Steel Dynamics and Secured Options

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Secured Options. In addition to that, Steel Dynamics is 2.71 times more volatile than Secured Options Portfolio. It trades about -0.25 of its total potential returns per unit of risk. Secured Options Portfolio is currently generating about -0.3 per unit of volatility. If you would invest  1,419  in Secured Options Portfolio on December 10, 2024 and sell it today you would lose (63.00) from holding Secured Options Portfolio or give up 4.44% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Steel Dynamics  vs.  Secured Options Portfolio

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 latest fragile performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Secured Options Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Secured Options Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Steel Dynamics and Secured Options

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

The idea behind Steel Dynamics and Secured Options Portfolio 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.