Correlation Between Steel Dynamics and Iron Road
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Iron Road 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 Iron Road into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Iron Road Limited, you can compare the effects of market volatilities on Steel Dynamics and Iron Road 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 Iron Road. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Iron Road.
Diversification Opportunities for Steel Dynamics and Iron Road
-0.06 | Correlation Coefficient |
Good diversification
The 3 months correlation between Steel and Iron is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Iron Road Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iron Road Limited 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 Iron Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iron Road Limited has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Iron Road go up and down completely randomly.
Pair Corralation between Steel Dynamics and Iron Road
Assuming the 90 days horizon Steel Dynamics is expected to under-perform the Iron Road. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 2.35 times less risky than Iron Road. The stock trades about -0.71 of its potential returns per unit of risk. The Iron Road Limited is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest 2.60 in Iron Road Limited on September 25, 2024 and sell it today you would lose (0.25) from holding Iron Road Limited or give up 9.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Steel Dynamics vs. Iron Road Limited
Performance |
| Timeline |
| Steel Dynamics |
| Iron Road Limited |
Steel Dynamics and Iron Road Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Iron Road
The main advantage of trading using opposite Steel Dynamics and Iron Road positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Iron Road 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 Iron Road will offset losses from the drop in Iron Road's long position.| Steel Dynamics vs. Nucor | Steel Dynamics vs. ArcelorMittal SA | Steel Dynamics vs. ArcelorMittal | Steel Dynamics vs. Nippon Steel |
| Iron Road vs. Nucor | Iron Road vs. ArcelorMittal SA | Iron Road vs. ArcelorMittal | Iron Road 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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