Correlation Between Steel Dynamics and Algernon Pharmaceuticals
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Algernon Pharmaceuticals 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 Algernon Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Algernon Pharmaceuticals, you can compare the effects of market volatilities on Steel Dynamics and Algernon Pharmaceuticals 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 Algernon Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Algernon Pharmaceuticals.
Diversification Opportunities for Steel Dynamics and Algernon Pharmaceuticals
-0.71 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Steel and Algernon is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Algernon Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algernon Pharmaceuticals 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 Algernon Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algernon Pharmaceuticals has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Algernon Pharmaceuticals go up and down completely randomly.
Pair Corralation between Steel Dynamics and Algernon Pharmaceuticals
Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.37 times less return on investment than Algernon Pharmaceuticals. But when comparing it to its historical volatility, Steel Dynamics is 5.03 times less risky than Algernon Pharmaceuticals. It trades about 0.06 of its potential returns per unit of risk. Algernon Pharmaceuticals is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 20.00 in Algernon Pharmaceuticals on August 29, 2024 and sell it today you would lose (14.12) from holding Algernon Pharmaceuticals or give up 70.6% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.75% |
| Values | Daily Returns |
Steel Dynamics vs. Algernon Pharmaceuticals
Performance |
| Timeline |
| Steel Dynamics |
| Algernon Pharmaceuticals |
Steel Dynamics and Algernon Pharmaceuticals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Algernon Pharmaceuticals
The main advantage of trading using opposite Steel Dynamics and Algernon Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Algernon Pharmaceuticals 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 Algernon Pharmaceuticals will offset losses from the drop in Algernon Pharmaceuticals' long position.The idea behind Steel Dynamics and Algernon Pharmaceuticals 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.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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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