Correlation Between Steel Dynamics and Copper

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

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

Diversification Opportunities for Steel Dynamics and Copper

0.46

Correlation Coefficient

Steel Dynamics  Copper

Very weak diversification

The 3 months correlation between Steel and Copper is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Copper 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 Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Copper has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Copper go up and down completely randomly.

Pair Corralation between Steel Dynamics and Copper

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.6 times less return on investment than Copper. In addition to that, Steel Dynamics is 1.45 times more volatile than Copper. It trades about 0.11 of its total potential returns per unit of risk. Copper is currently generating about 0.25 per unit of volatility. If you would invest  409.00  in Copper on December 28, 2024 and sell it today you would earn a total of  103.00  from holding Copper or generate 25.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Steel Dynamics  vs.  Copper

Steel Dynamics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 8 (%) 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.

Copper

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Copper are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Copper exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Copper

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

The idea behind Steel Dynamics and Copper 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.