Correlation Between Steel Dynamics and Aave
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Aave 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 Aave into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Aave, you can compare the effects of market volatilities on Steel Dynamics and Aave 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 Aave. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Aave.
Diversification Opportunities for Steel Dynamics and Aave
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Steel and Aave is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Aave in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aave 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 Aave. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aave has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Aave go up and down completely randomly.
Pair Corralation between Steel Dynamics and Aave
Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Aave. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 4.67 times less risky than Aave. The stock trades about -0.32 of its potential returns per unit of risk. The Aave is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 17,961 in Aave on September 12, 2024 and sell it today you would earn a total of 11,759 from holding Aave or generate 65.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Steel Dynamics vs. Aave
Performance |
| Timeline |
| Steel Dynamics |
| Aave |
Steel Dynamics and Aave Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Aave
The main advantage of trading using opposite Steel Dynamics and Aave positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Aave 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 Aave will offset losses from the drop in Aave's long position.| Steel Dynamics vs. Cleveland Cliffs | Steel Dynamics vs. United States Steel | Steel Dynamics vs. ArcelorMittal SA ADR | Steel Dynamics vs. Reliance Steel Aluminum |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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