Correlation Between Steel Dynamics and Russell 2000

Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Russell 2000 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 Russell 2000 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Steel Dynamics and Russell 2000 2x, you can compare the effects of market volatilities on Steel Dynamics and Russell 2000 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 Russell 2000. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Russell 2000.

Diversification Opportunities for Steel Dynamics and Russell 2000

0.81

Correlation Coefficient

Steel Dynamics  Russell 2000

Very poor diversification

The 3 months correlation between Steel and Russell is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Russell 2000 2x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russell 2000 2x 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 Russell 2000. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russell 2000 2x has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Russell 2000 go up and down completely randomly.

Pair Corralation between Steel Dynamics and Russell 2000

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Russell 2000. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 1.38 times less risky than Russell 2000. The stock trades about -0.29 of its potential returns per unit of risk. The Russell 2000 2x is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  20,246  in Russell 2000 2x on September 12, 2024 and sell it today you would lose (795.00) from holding Russell 2000 2x or give up 3.93% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Steel Dynamics  vs.  Russell 2000 2x

Steel Dynamics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 11 (%) 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.

Russell 2000 2x

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Russell 2000 2x are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Russell 2000 showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Russell 2000

The main advantage of trading using opposite Steel Dynamics and Russell 2000 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Russell 2000 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 Russell 2000 will offset losses from the drop in Russell 2000's long position.

The idea behind Steel Dynamics and Russell 2000 2x 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.