Correlation Between Steel Dynamics and Federal Home
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Federal Home 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 Federal Home into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Federal Home Loan, you can compare the effects of market volatilities on Steel Dynamics and Federal Home 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 Federal Home. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Federal Home.
Diversification Opportunities for Steel Dynamics and Federal Home
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Steel and Federal is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Federal Home Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Home Loan 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 Federal Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Home Loan has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Federal Home go up and down completely randomly.
Pair Corralation between Steel Dynamics and Federal Home
Given the investment horizon of 90 days Steel Dynamics is expected to generate 5.44 times less return on investment than Federal Home. But when comparing it to its historical volatility, Steel Dynamics is 2.51 times less risky than Federal Home. It trades about 0.04 of its potential returns per unit of risk. Federal Home Loan is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 301.00 in Federal Home Loan on August 29, 2024 and sell it today you would earn a total of 1,200 from holding Federal Home Loan or generate 398.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Steel Dynamics vs. Federal Home Loan
Performance |
| Timeline |
| Steel Dynamics |
| Federal Home Loan |
Steel Dynamics and Federal Home Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Federal Home
The main advantage of trading using opposite Steel Dynamics and Federal Home positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Federal Home 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 Federal Home will offset losses from the drop in Federal Home'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 |
| Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan | Federal Home vs. Federal Home Loan |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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