Correlation Between Steel Dynamics and ArcelorMittal
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and ArcelorMittal 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 ArcelorMittal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and ArcelorMittal SA, you can compare the effects of market volatilities on Steel Dynamics and ArcelorMittal 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 ArcelorMittal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and ArcelorMittal.
Diversification Opportunities for Steel Dynamics and ArcelorMittal
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Steel and ArcelorMittal is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and ArcelorMittal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcelorMittal SA 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 ArcelorMittal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ArcelorMittal SA has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and ArcelorMittal go up and down completely randomly.
Pair Corralation between Steel Dynamics and ArcelorMittal
Given the investment horizon of 90 days Steel Dynamics is expected to generate 2.52 times less return on investment than ArcelorMittal. But when comparing it to its historical volatility, Steel Dynamics is 1.01 times less risky than ArcelorMittal. It trades about 0.11 of its potential returns per unit of risk. ArcelorMittal SA is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 2,260 in ArcelorMittal SA on August 28, 2024 and sell it today you would earn a total of 250.00 from holding ArcelorMittal SA or generate 11.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 57.14% |
| Values | Daily Returns |
Steel Dynamics vs. ArcelorMittal SA
Performance |
| Timeline |
| Steel Dynamics |
| ArcelorMittal SA |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Good
Steel Dynamics and ArcelorMittal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and ArcelorMittal
The main advantage of trading using opposite Steel Dynamics and ArcelorMittal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, ArcelorMittal 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 ArcelorMittal will offset losses from the drop in ArcelorMittal's long position.The idea behind Steel Dynamics and ArcelorMittal SA 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.| ArcelorMittal vs. Olympic Steel | ArcelorMittal vs. Mesabi Trust | ArcelorMittal vs. Universal Stainless Alloy | ArcelorMittal vs. POSCO Holdings |
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 Global Correlations module to find global opportunities by holding instruments from different markets.
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