Correlation Between Steel Dynamics and IO Biotech

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

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

Diversification Opportunities for Steel Dynamics and IO Biotech

0.48

Correlation Coefficient

Steel Dynamics  IO Biotech

Very weak diversification

The 3 months correlation between Steel and IOBT is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and IO Biotech in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IO Biotech 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 IO Biotech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IO Biotech has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and IO Biotech go up and down completely randomly.

Pair Corralation between Steel Dynamics and IO Biotech

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.91 times less return on investment than IO Biotech. But when comparing it to its historical volatility, Steel Dynamics is 2.0 times less risky than IO Biotech. It trades about 0.09 of its potential returns per unit of risk. IO Biotech is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  98.00  in IO Biotech on December 27, 2024 and sell it today you would earn a total of  19.00  from holding IO Biotech or generate 19.39% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Steel Dynamics  vs.  IO Biotech

Steel Dynamics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 7 (%) 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.

IO Biotech

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IO Biotech are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, IO Biotech unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and IO Biotech

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

The idea behind Steel Dynamics and IO Biotech 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.