Correlation Between Steel Dynamics and ArcelorMittal

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

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

Diversification Opportunities for Steel Dynamics and ArcelorMittal

0.6

Correlation Coefficient

Steel Dynamics  ArcelorMittal

Poor diversification

The 3 months correlation between Steel and ArcelorMittal is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and ArcelorMittal SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcelorMittal SA ADR 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 ArcelorMittal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ArcelorMittal SA ADR has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and ArcelorMittal go up and down completely randomly.

Pair Corralation between Steel Dynamics and ArcelorMittal

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the ArcelorMittal. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 1.14 times less risky than ArcelorMittal. The stock trades about -0.06 of its potential returns per unit of risk. The ArcelorMittal SA ADR is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,528  in ArcelorMittal SA ADR on November 28, 2024 and sell it today you would earn a total of  263.00  from holding ArcelorMittal SA ADR or generate 10.4% return on investment over 90 days.

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

Steel Dynamics  vs.  ArcelorMittal SA ADR

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 latest fragile performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

ArcelorMittal SA ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA ADR are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, ArcelorMittal may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Steel Dynamics and ArcelorMittal

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

The idea behind Steel Dynamics and ArcelorMittal SA ADR 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.