Correlation Between Steel Dynamics and Right On

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

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

Diversification Opportunities for Steel Dynamics and Right On

-0.39

Correlation Coefficient

Steel Dynamics  Right On

Very good diversification

The 3 months correlation between Steel and Right is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Right On Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Right On Brands 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 Right On. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Right On Brands has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Right On go up and down completely randomly.

Pair Corralation between Steel Dynamics and Right On

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Right On. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 10.95 times less risky than Right On. The stock trades about -0.04 of its potential returns per unit of risk. The Right On Brands is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  4.50  in Right On Brands on December 1, 2024 and sell it today you would lose (1.69) from holding Right On Brands or give up 37.56% of portfolio value over 90 days.

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

Steel Dynamics  vs.  Right On Brands

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 rather sound essential indicators, Steel Dynamics is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Right On Brands

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Right On Brands are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Right On displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Right On

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

The idea behind Steel Dynamics and Right On Brands 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..