Correlation Between Steel Dynamics and Thompson Largecap

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

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

Diversification Opportunities for Steel Dynamics and Thompson Largecap

0.19

Correlation Coefficient

Steel Dynamics  Thompson Largecap

Average diversification

The 3 months correlation between Steel and Thompson is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Thompson Largecap Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thompson Largecap 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 Thompson Largecap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thompson Largecap has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Thompson Largecap go up and down completely randomly.

Pair Corralation between Steel Dynamics and Thompson Largecap

Given the investment horizon of 90 days Steel Dynamics is expected to generate 2.4 times more return on investment than Thompson Largecap. However, Steel Dynamics is 2.4 times more volatile than Thompson Largecap Fund. It trades about 0.08 of its potential returns per unit of risk. Thompson Largecap Fund is currently generating about 0.0 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.  Thompson Largecap Fund

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.

Thompson Largecap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Thompson Largecap Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, Thompson Largecap 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 Thompson Largecap

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

The idea behind Steel Dynamics and Thompson Largecap Fund 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.