Correlation Between Steel Dynamics and Hudbay Minerals

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

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

Diversification Opportunities for Steel Dynamics and Hudbay Minerals

0.36

Correlation Coefficient

Steel Dynamics  Hudbay Minerals

Weak diversification

The 3 months correlation between Steel and Hudbay is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Hudbay Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hudbay Minerals 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 Hudbay Minerals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hudbay Minerals has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Hudbay Minerals go up and down completely randomly.

Pair Corralation between Steel Dynamics and Hudbay Minerals

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.95 times less return on investment than Hudbay Minerals. But when comparing it to its historical volatility, Steel Dynamics is 1.38 times less risky than Hudbay Minerals. It trades about 0.03 of its potential returns per unit of risk. Hudbay Minerals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  506.00  in Hudbay Minerals on September 21, 2024 and sell it today you would earn a total of  285.00  from holding Hudbay Minerals or generate 56.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Steel Dynamics  vs.  Hudbay Minerals

Steel Dynamics

Risk-Adjusted Performance

0 of 100

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.

Hudbay Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hudbay Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental drivers, Hudbay Minerals is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Steel Dynamics and Hudbay Minerals

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

The idea behind Steel Dynamics and Hudbay Minerals 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.