Correlation Between Steel Dynamics and Hainan Drinda

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Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Hainan Drinda 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 Hainan Drinda into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Hainan Drinda Automotive, you can compare the effects of market volatilities on Steel Dynamics and Hainan Drinda 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 Hainan Drinda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Hainan Drinda.

Diversification Opportunities for Steel Dynamics and Hainan Drinda

0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between Steel and Hainan is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Hainan Drinda Automotive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hainan Drinda Automotive 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 Hainan Drinda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hainan Drinda Automotive has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Hainan Drinda go up and down completely randomly.

Pair Corralation between Steel Dynamics and Hainan Drinda

Given the investment horizon of 90 days Steel Dynamics is expected to generate 0.56 times more return on investment than Hainan Drinda. However, Steel Dynamics is 1.78 times less risky than Hainan Drinda. It trades about 0.04 of its potential returns per unit of risk. Hainan Drinda Automotive is currently generating about -0.01 per unit of risk. If you would invest  10,552  in Steel Dynamics on September 4, 2024 and sell it today you would earn a total of  3,929  from holding Steel Dynamics or generate 37.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy96.36%
ValuesDaily Returns

Steel Dynamics  vs.  Hainan Drinda Automotive

 Performance 
       Timeline  
Steel Dynamics 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 13 (%) 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.
Hainan Drinda Automotive 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Hainan Drinda Automotive are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Hainan Drinda sustained solid returns over the last few months and may actually be approaching a breakup point.

Steel Dynamics and Hainan Drinda Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Steel Dynamics and Hainan Drinda

The main advantage of trading using opposite Steel Dynamics and Hainan Drinda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Hainan Drinda 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 Hainan Drinda will offset losses from the drop in Hainan Drinda's long position.
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The idea behind Steel Dynamics and Hainan Drinda Automotive 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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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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