Correlation Between Steel Dynamics and Piedmont Lithium
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Piedmont Lithium 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 Piedmont Lithium into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Piedmont Lithium, you can compare the effects of market volatilities on Steel Dynamics and Piedmont Lithium 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 Piedmont Lithium. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Piedmont Lithium.
Diversification Opportunities for Steel Dynamics and Piedmont Lithium
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Steel and Piedmont is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Piedmont Lithium in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Piedmont Lithium 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 Piedmont Lithium. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Piedmont Lithium has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Piedmont Lithium go up and down completely randomly.
Pair Corralation between Steel Dynamics and Piedmont Lithium
Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.82 times less return on investment than Piedmont Lithium. But when comparing it to its historical volatility, Steel Dynamics is 5.34 times less risky than Piedmont Lithium. It trades about 0.06 of its potential returns per unit of risk. Piedmont Lithium is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 23.00 in Piedmont Lithium on September 4, 2024 and sell it today you would lose (13.00) from holding Piedmont Lithium or give up 56.52% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.6% |
| Values | Daily Returns |
Steel Dynamics vs. Piedmont Lithium
Performance |
| Timeline |
| Steel Dynamics |
| Piedmont Lithium |
Steel Dynamics and Piedmont Lithium Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Piedmont Lithium
The main advantage of trading using opposite Steel Dynamics and Piedmont Lithium positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Piedmont Lithium 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 Piedmont Lithium will offset losses from the drop in Piedmont Lithium'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 |
| Piedmont Lithium vs. Qubec Nickel Corp | Piedmont Lithium vs. IGO Limited | Piedmont Lithium vs. Avarone Metals | Piedmont Lithium vs. Adriatic Metals PLC |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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