Correlation Between Steel Dynamics and Ivy Natural

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

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

Diversification Opportunities for Steel Dynamics and Ivy Natural

0.71

Correlation Coefficient

Steel Dynamics  Ivy Natural

Poor diversification

The 3 months correlation between Steel and Ivy is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Ivy Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ivy Natural Resources 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 Ivy Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ivy Natural Resources has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Ivy Natural go up and down completely randomly.

Pair Corralation between Steel Dynamics and Ivy Natural

Given the investment horizon of 90 days Steel Dynamics is expected to generate 2.77 times more return on investment than Ivy Natural. However, Steel Dynamics is 2.77 times more volatile than Ivy Natural Resources. It trades about 0.14 of its potential returns per unit of risk. Ivy Natural Resources is currently generating about 0.11 per unit of risk. If you would invest  11,014  in Steel Dynamics on September 12, 2024 and sell it today you would earn a total of  2,442  from holding Steel Dynamics or generate 22.18% 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.  Ivy Natural Resources

Steel Dynamics

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 10 (%) 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.

Ivy Natural Resources

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ivy Natural Resources are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Ivy Natural may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Steel Dynamics and Ivy Natural

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

The idea behind Steel Dynamics and Ivy Natural Resources 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.