Correlation Between United States and Steel Dynamics

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

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

Diversification Opportunities for United States and Steel Dynamics

0.64

Correlation Coefficient

United States  Steel Dynamics

Poor diversification

The 3 months correlation between United and Steel is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and United States 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 United States Steel are associated (or correlated) with Steel Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Dynamics has no effect on the direction of United States i.e., United States and Steel Dynamics go up and down completely randomly.

Pair Corralation between United States and Steel Dynamics

Assuming the 90 days trading horizon United States Steel is expected to generate 1.36 times more return on investment than Steel Dynamics. However, United States is 1.36 times more volatile than Steel Dynamics. It trades about 0.2 of its potential returns per unit of risk. Steel Dynamics is currently generating about 0.06 per unit of risk. If you would invest  2,975  in United States Steel on December 29, 2024 and sell it today you would earn a total of  1,225  from holding United States Steel or generate 41.18% return on investment over 90 days.

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

United States Steel  vs.  Steel Dynamics

United States Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, United States reported solid returns over the last few months and may actually be approaching a breakup point.

Steel Dynamics

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Steel Dynamics may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with United States and Steel Dynamics

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

The idea behind United States Steel and Steel Dynamics 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.