Correlation Between Steel Dynamics and Sumitomo Metal

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

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

Diversification Opportunities for Steel Dynamics and Sumitomo Metal

0.06

Correlation Coefficient

Steel Dynamics  Sumitomo Metal

Significant diversification

The 3 months correlation between Steel and Sumitomo is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Sumitomo Metal Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Metal Mining 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 Sumitomo Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Metal Mining has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Sumitomo Metal go up and down completely randomly.

Pair Corralation between Steel Dynamics and Sumitomo Metal

Given the investment horizon of 90 days Steel Dynamics is expected to generate 0.97 times more return on investment than Sumitomo Metal. However, Steel Dynamics is 1.03 times less risky than Sumitomo Metal. It trades about 0.08 of its potential returns per unit of risk. Sumitomo Metal Mining is currently generating about 0.02 per unit of risk. If you would invest  11,334  in Steel Dynamics on December 29, 2024 and sell it today you would earn a total of  1,063  from holding Steel Dynamics or generate 9.38% 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.  Sumitomo Metal Mining

Steel Dynamics

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 6 (%) 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.

Sumitomo Metal Mining

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Metal Mining are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Sumitomo Metal 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 Sumitomo Metal

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

The idea behind Steel Dynamics and Sumitomo Metal Mining 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.