Correlation Between Steel Dynamics and Canon
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Canon 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 Canon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Canon Inc, you can compare the effects of market volatilities on Steel Dynamics and Canon 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 Canon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Canon.
Diversification Opportunities for Steel Dynamics and Canon
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Steel and Canon is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Canon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canon Inc 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 Canon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canon Inc has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Canon go up and down completely randomly.
Pair Corralation between Steel Dynamics and Canon
Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.98 times less return on investment than Canon. But when comparing it to its historical volatility, Steel Dynamics is 1.15 times less risky than Canon. It trades about 0.04 of its potential returns per unit of risk. Canon Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest 2,401 in Canon Inc on September 3, 2024 and sell it today you would earn a total of 599.00 from holding Canon Inc or generate 24.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 96.69% |
| Values | Daily Returns |
Steel Dynamics vs. Canon Inc
Performance |
| Timeline |
| Steel Dynamics |
| Canon Inc |
Steel Dynamics and Canon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Canon
The main advantage of trading using opposite Steel Dynamics and Canon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Canon 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 Canon will offset losses from the drop in Canon'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 |
| Canon vs. SOUTHWEST AIRLINES | Canon vs. CVS Health | Canon vs. ON SEMICONDUCTOR | Canon vs. SINGAPORE AIRLINES |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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