Correlation Between Steel Dynamics and Mentor Capital

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

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

Diversification Opportunities for Steel Dynamics and Mentor Capital

-0.54

Correlation Coefficient

Steel Dynamics  Mentor Capital

Excellent diversification

The 3 months correlation between Steel and Mentor is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Mentor Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mentor Capital 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 Mentor Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mentor Capital has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Mentor Capital go up and down completely randomly.

Pair Corralation between Steel Dynamics and Mentor Capital

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.37 times less return on investment than Mentor Capital. But when comparing it to its historical volatility, Steel Dynamics is 5.4 times less risky than Mentor Capital. It trades about 0.17 of its potential returns per unit of risk. Mentor Capital is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  7.00  in Mentor Capital on September 3, 2024 and sell it today you would lose (1.00) from holding Mentor Capital or give up 14.29% of portfolio value over 90 days.

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

Steel Dynamics  vs.  Mentor Capital

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.

Mentor Capital

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mentor Capital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Mentor Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Mentor Capital

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

The idea behind Steel Dynamics and Mentor Capital 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.