Correlation Between Steel Dynamics and NRJ

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

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

Diversification Opportunities for Steel Dynamics and NRJ

0.04

Correlation Coefficient

Steel Dynamics  NRJ

Significant diversification

The 3 months correlation between Steel and NRJ is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and NRJ Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NRJ Group 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 NRJ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NRJ Group has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and NRJ go up and down completely randomly.

Pair Corralation between Steel Dynamics and NRJ

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.74 times more return on investment than NRJ. However, Steel Dynamics is 1.74 times more volatile than NRJ Group. It trades about 0.09 of its potential returns per unit of risk. NRJ Group is currently generating about -0.01 per unit of risk. If you would invest  11,530  in Steel Dynamics on December 27, 2024 and sell it today you would earn a total of  1,269  from holding Steel Dynamics or generate 11.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.83%
Values	Daily Returns

Steel Dynamics  vs.  NRJ Group

Steel Dynamics

Risk-Adjusted Performance

OK

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 may actually be approaching a critical reversion point that can send shares even higher in April 2025.

NRJ Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days NRJ Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, NRJ is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Steel Dynamics and NRJ

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

The idea behind Steel Dynamics and NRJ Group 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.