Correlation Between Steel Dynamics and Tidewater Renewables

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

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

Diversification Opportunities for Steel Dynamics and Tidewater Renewables

0.21

Correlation Coefficient

Steel Dynamics  Tidewater Renewables

Modest diversification

The 3 months correlation between Steel and Tidewater is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Tidewater Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tidewater Renewables 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 Tidewater Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tidewater Renewables has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Tidewater Renewables go up and down completely randomly.

Pair Corralation between Steel Dynamics and Tidewater Renewables

Given the investment horizon of 90 days Steel Dynamics is expected to generate 25.54 times less return on investment than Tidewater Renewables. But when comparing it to its historical volatility, Steel Dynamics is 19.06 times less risky than Tidewater Renewables. It trades about 0.14 of its potential returns per unit of risk. Tidewater Renewables is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  78.00  in Tidewater Renewables on December 2, 2024 and sell it today you would earn a total of  85.00  from holding Tidewater Renewables or generate 108.97% return on investment over 90 days.

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

Steel Dynamics  vs.  Tidewater Renewables

Steel Dynamics

Risk-Adjusted Performance

Very Weak

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

Tidewater Renewables

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tidewater Renewables are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Tidewater Renewables displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Tidewater Renewables

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

The idea behind Steel Dynamics and Tidewater Renewables 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.

Check out your portfolio center.

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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.