Correlation Between Nucor and United States
Can any of the company-specific risk be diversified away by investing in both Nucor and United States 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 Nucor and United States into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nucor and United States Steel, you can compare the effects of market volatilities on Nucor and United States 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 Nucor with a short position of United States. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nucor and United States.
Diversification Opportunities for Nucor and United States
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Nucor and United is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Nucor and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel and Nucor 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 Nucor are associated (or correlated) with United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of Nucor i.e., Nucor and United States go up and down completely randomly.
Pair Corralation between Nucor and United States
Assuming the 90 days horizon Nucor is expected to generate 0.95 times more return on investment than United States. However, Nucor is 1.05 times less risky than United States. It trades about -0.05 of its potential returns per unit of risk. United States Steel is currently generating about -0.05 per unit of risk. If you would invest 15,803 in Nucor on September 25, 2024 and sell it today you would lose (4,781) from holding Nucor or give up 30.25% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nucor vs. United States Steel
Performance |
| Timeline |
| Nucor |
| United States Steel |
Nucor and United States Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nucor and United States
The main advantage of trading using opposite Nucor and United States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nucor position performs unexpectedly, United States 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 United States will offset losses from the drop in United States' long position.The idea behind Nucor and United States Steel 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.| United States vs. Nucor | United States vs. ArcelorMittal SA | United States vs. ArcelorMittal | United States vs. Steel Dynamics |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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