Correlation Between Select Sector and Steel Dynamics
Can any of the company-specific risk be diversified away by investing in both Select Sector 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 Select Sector and Steel Dynamics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Select Sector and Steel Dynamics, you can compare the effects of market volatilities on Select Sector 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 Select Sector with a short position of Steel Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Select Sector and Steel Dynamics.
Diversification Opportunities for Select Sector and Steel Dynamics
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Select and Steel is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding The Select Sector and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and Select Sector 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 The Select Sector 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 Select Sector i.e., Select Sector and Steel Dynamics go up and down completely randomly.
Pair Corralation between Select Sector and Steel Dynamics
Assuming the 90 days trading horizon The Select Sector is expected to generate 0.66 times more return on investment than Steel Dynamics. However, The Select Sector is 1.53 times less risky than Steel Dynamics. It trades about 0.09 of its potential returns per unit of risk. Steel Dynamics is currently generating about 0.04 per unit of risk. If you would invest 104,622 in The Select Sector on December 4, 2024 and sell it today you would earn a total of 57,478 from holding The Select Sector or generate 54.94% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 100.0% |
Values | Daily Returns |
The Select Sector vs. Steel Dynamics
Performance |
Timeline |
Select Sector |
Steel Dynamics |
Select Sector and Steel Dynamics Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Select Sector and Steel Dynamics
The main advantage of trading using opposite Select Sector and Steel Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select Sector 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.Select Sector vs. The Select Sector | Select Sector vs. The Select Sector | Select Sector vs. The Select Sector | Select Sector vs. The Select Sector |
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Check out your portfolio center.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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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