Correlation Between Steel Dynamics and IShares JP

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

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

Diversification Opportunities for Steel Dynamics and IShares JP

0.67

Correlation Coefficient

Steel Dynamics  IShares JP

Poor diversification

The 3 months correlation between Steel and IShares is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and iShares JP Morgan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares JP Morgan 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 IShares JP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares JP Morgan has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and IShares JP go up and down completely randomly.

Pair Corralation between Steel Dynamics and IShares JP

Given the investment horizon of 90 days Steel Dynamics is expected to generate 6.79 times more return on investment than IShares JP. However, Steel Dynamics is 6.79 times more volatile than iShares JP Morgan. It trades about 0.08 of its potential returns per unit of risk. iShares JP Morgan is currently generating about 0.09 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	Significant
Accuracy	96.83%
Values	Daily Returns

Steel Dynamics  vs.  iShares JP Morgan

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.

iShares JP Morgan

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares JP Morgan are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, IShares JP 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 IShares JP

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

The idea behind Steel Dynamics and iShares JP Morgan 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.