Correlation Between Steel Dynamics and Sprott

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

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

Diversification Opportunities for Steel Dynamics and Sprott

0.36

Correlation Coefficient

Steel Dynamics  Sprott

Weak diversification

The 3 months correlation between Steel and Sprott is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Sprott Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sprott Inc 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 Sprott. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sprott Inc has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Sprott go up and down completely randomly.

Pair Corralation between Steel Dynamics and Sprott

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Sprott. In addition to that, Steel Dynamics is 1.21 times more volatile than Sprott Inc. It trades about -0.04 of its total potential returns per unit of risk. Sprott Inc is currently generating about 0.01 per unit of volatility. If you would invest  6,141  in Sprott Inc on December 2, 2024 and sell it today you would lose (4.00) from holding Sprott Inc or give up 0.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Steel Dynamics  vs.  Sprott Inc

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.

Sprott Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sprott Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Sprott is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Steel Dynamics and Sprott

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

The idea behind Steel Dynamics and Sprott Inc 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.