Correlation Between Steel Dynamics and ICOS

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

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

Diversification Opportunities for Steel Dynamics and ICOS

0.42

Correlation Coefficient

Steel Dynamics  ICOS

Very weak diversification

The 3 months correlation between Steel and ICOS is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and ICOS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ICOS 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 ICOS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ICOS has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and ICOS go up and down completely randomly.

Pair Corralation between Steel Dynamics and ICOS

If you would invest  13,358  in Steel Dynamics on September 4, 2024 and sell it today you would earn a total of  1,123  from holding Steel Dynamics or generate 8.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	4.76%
Values	Daily Returns

Steel Dynamics  vs.  ICOS

Steel Dynamics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 13 (%) 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.

ICOS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ICOS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, ICOS is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Steel Dynamics and ICOS

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

The idea behind Steel Dynamics and ICOS 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.