Correlation Between Steel Dynamics and Associated British
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Associated British 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 Associated British into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Associated British Foods, you can compare the effects of market volatilities on Steel Dynamics and Associated British 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 Associated British. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Associated British.
Diversification Opportunities for Steel Dynamics and Associated British
-0.77 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Steel and Associated is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Associated British Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated British Foods 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 Associated British. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated British Foods has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Associated British go up and down completely randomly.
Pair Corralation between Steel Dynamics and Associated British
Given the investment horizon of 90 days Steel Dynamics is expected to generate 3.06 times less return on investment than Associated British. But when comparing it to its historical volatility, Steel Dynamics is 1.29 times less risky than Associated British. It trades about 0.04 of its potential returns per unit of risk. Associated British Foods is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,398 in Associated British Foods on August 28, 2024 and sell it today you would earn a total of 1,437 from holding Associated British Foods or generate 102.79% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 59.8% |
| Values | Daily Returns |
Steel Dynamics vs. Associated British Foods
Performance |
| Timeline |
| Steel Dynamics |
| Associated British Foods |
Steel Dynamics and Associated British Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Associated British
The main advantage of trading using opposite Steel Dynamics and Associated British positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Associated British 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 Associated British will offset losses from the drop in Associated British's long position.The idea behind Steel Dynamics and Associated British Foods 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.| Associated British vs. Darling Ingredients | Associated British vs. JM Smucker | Associated British vs. McCormick Company Incorporated | Associated British vs. Campbell Soup |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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