Correlation Between Steel Dynamics and MRM SA
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and MRM SA 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 MRM SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and MRM SA, you can compare the effects of market volatilities on Steel Dynamics and MRM SA 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 MRM SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and MRM SA.
Diversification Opportunities for Steel Dynamics and MRM SA
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Steel and MRM is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and MRM SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MRM 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 MRM SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MRM SA has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and MRM SA go up and down completely randomly.
Pair Corralation between Steel Dynamics and MRM SA
Given the investment horizon of 90 days Steel Dynamics is expected to generate 2.26 times less return on investment than MRM SA. But when comparing it to its historical volatility, Steel Dynamics is 3.64 times less risky than MRM SA. It trades about 0.06 of its potential returns per unit of risk. MRM SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,144 in MRM SA on September 4, 2024 and sell it today you would earn a total of 1,406 from holding MRM SA or generate 65.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 98.42% |
| Values | Daily Returns |
Steel Dynamics vs. MRM SA
Performance |
| Timeline |
| Steel Dynamics |
| MRM SA |
Steel Dynamics and MRM SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and MRM SA
The main advantage of trading using opposite Steel Dynamics and MRM SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, MRM SA 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 MRM SA will offset losses from the drop in MRM SA'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 |
| MRM SA vs. Groupe Partouche SA | MRM SA vs. Fonciere Inea | MRM SA vs. Patrimoine et Commerce | MRM SA vs. Societe de la |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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