Correlation Between Steel Dynamics and Arconic

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

By analyzing existing cross correlation between Steel Dynamics and Arconic 59 percent, you can compare the effects of market volatilities on Steel Dynamics and Arconic 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 Arconic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Arconic.

Diversification Opportunities for Steel Dynamics and Arconic

0.42

Correlation Coefficient

Steel Dynamics  Arconic

Very weak diversification

The 3 months correlation between Steel and Arconic is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Arconic 59 percent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arconic 59 percent 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 Arconic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arconic 59 percent has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Arconic go up and down completely randomly.

Pair Corralation between Steel Dynamics and Arconic

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Arconic. In addition to that, Steel Dynamics is 4.96 times more volatile than Arconic 59 percent. It trades about -0.04 of its total potential returns per unit of risk. Arconic 59 percent is currently generating about -0.07 per unit of volatility. If you would invest  10,260  in Arconic 59 percent on December 2, 2024 and sell it today you would lose (175.00) from holding Arconic 59 percent or give up 1.71% of portfolio value over 90 days.

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

Steel Dynamics  vs.  Arconic 59 percent

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.

Arconic 59 percent

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arconic 59 percent has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Arconic is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Steel Dynamics and Arconic

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

The idea behind Steel Dynamics and Arconic 59 percent 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.