Correlation Between Steel Dynamics and Torrent Capital

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

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

Diversification Opportunities for Steel Dynamics and Torrent Capital

-0.32

Correlation Coefficient

Steel Dynamics  Torrent Capital

Very good diversification

The 3 months correlation between Steel and Torrent is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Torrent Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Torrent Capital 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 Torrent Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Torrent Capital has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Torrent Capital go up and down completely randomly.

Pair Corralation between Steel Dynamics and Torrent Capital

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Torrent Capital. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 1.16 times less risky than Torrent Capital. The stock trades about -0.04 of its potential returns per unit of risk. The Torrent Capital is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  39.00  in Torrent Capital on December 1, 2024 and sell it today you would earn a total of  5.00  from holding Torrent Capital or generate 12.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.75%
Values	Daily Returns

Steel Dynamics  vs.  Torrent Capital

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.

Torrent Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Torrent Capital are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Torrent Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Torrent Capital

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

The idea behind Steel Dynamics and Torrent Capital 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.