Correlation Between Steel Dynamics and Laramide Resources

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

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

Diversification Opportunities for Steel Dynamics and Laramide Resources

0.82

Correlation Coefficient

Steel Dynamics  Laramide Resources

Very poor diversification

The 3 months correlation between Steel and Laramide is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Laramide Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laramide 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 Laramide Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laramide Resources has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Laramide Resources go up and down completely randomly.

Pair Corralation between Steel Dynamics and Laramide Resources

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.6 times less return on investment than Laramide Resources. But when comparing it to its historical volatility, Steel Dynamics is 1.94 times less risky than Laramide Resources. It trades about 0.17 of its potential returns per unit of risk. Laramide Resources is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  36.00  in Laramide Resources on September 5, 2024 and sell it today you would earn a total of  16.00  from holding Laramide Resources or generate 44.44% return on investment over 90 days.

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

Steel Dynamics  vs.  Laramide Resources

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.

Laramide Resources

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Laramide Resources are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Laramide Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Laramide Resources

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

The idea behind Steel Dynamics and Laramide 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.