Correlation Between Steel Dynamics and Xtrackers

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

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

Diversification Opportunities for Steel Dynamics and Xtrackers

-0.77

Correlation Coefficient

Steel Dynamics  Xtrackers

Pay attention - limited upside

The 3 months correlation between Steel and Xtrackers is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Xtrackers II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers II 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 Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers II has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Xtrackers go up and down completely randomly.

Pair Corralation between Steel Dynamics and Xtrackers

Given the investment horizon of 90 days Steel Dynamics is expected to generate 3.05 times more return on investment than Xtrackers. However, Steel Dynamics is 3.05 times more volatile than Xtrackers II . It trades about 0.12 of its potential returns per unit of risk. Xtrackers II is currently generating about -0.07 per unit of risk. If you would invest  11,243  in Steel Dynamics on September 13, 2024 and sell it today you would earn a total of  2,112  from holding Steel Dynamics or generate 18.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Steel Dynamics  vs.  Xtrackers II

Steel Dynamics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers II has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Steel Dynamics and Xtrackers

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

The idea behind Steel Dynamics and Xtrackers II 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.