Correlation Between Steel Dynamics and Diamondrock Hospitality

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

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

Diversification Opportunities for Steel Dynamics and Diamondrock Hospitality

0.77

Correlation Coefficient

Steel Dynamics  Diamondrock Hospitality

Poor diversification

The 3 months correlation between Steel and Diamondrock is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Diamondrock Hospitality Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamondrock Hospitality 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 Diamondrock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamondrock Hospitality has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Diamondrock Hospitality go up and down completely randomly.

Pair Corralation between Steel Dynamics and Diamondrock Hospitality

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.07 times less return on investment than Diamondrock Hospitality. In addition to that, Steel Dynamics is 1.3 times more volatile than Diamondrock Hospitality Co. It trades about 0.12 of its total potential returns per unit of risk. Diamondrock Hospitality Co is currently generating about 0.17 per unit of volatility. If you would invest  757.00  in Diamondrock Hospitality Co on September 13, 2024 and sell it today you would earn a total of  163.00  from holding Diamondrock Hospitality Co or generate 21.53% return on investment over 90 days.

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

Steel Dynamics  vs.  Diamondrock Hospitality Co

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.

Diamondrock Hospitality

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Steel Dynamics and Diamondrock Hospitality

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

The idea behind Steel Dynamics and Diamondrock Hospitality Co 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.