Correlation Between Steel Dynamics and POSCO Holdings

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

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

Diversification Opportunities for Steel Dynamics and POSCO Holdings

0.04

Correlation Coefficient

Steel Dynamics  POSCO Holdings

Significant diversification

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

Pair Corralation between Steel Dynamics and POSCO Holdings

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.31 times less return on investment than POSCO Holdings. But when comparing it to its historical volatility, Steel Dynamics is 1.28 times less risky than POSCO Holdings. It trades about 0.11 of its potential returns per unit of risk. POSCO Holdings is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,330  in POSCO Holdings on December 28, 2024 and sell it today you would earn a total of  742.00  from holding POSCO Holdings or generate 17.14% return on investment over 90 days.

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

Steel Dynamics  vs.  POSCO Holdings

Steel Dynamics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 8 (%) 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.

POSCO Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in POSCO Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward-looking signals, POSCO Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and POSCO Holdings

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

The idea behind Steel Dynamics and POSCO Holdings 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.