Correlation Between Steel Dynamics and Smallcap
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Smallcap 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 Smallcap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Smallcap Sp 600, you can compare the effects of market volatilities on Steel Dynamics and Smallcap 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 Smallcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Smallcap.
Diversification Opportunities for Steel Dynamics and Smallcap
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Steel and Smallcap is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Smallcap Sp 600 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smallcap Sp 600 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 Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smallcap Sp 600 has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Smallcap go up and down completely randomly.
Pair Corralation between Steel Dynamics and Smallcap
Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Smallcap. In addition to that, Steel Dynamics is 1.42 times more volatile than Smallcap Sp 600. It trades about -0.29 of its total potential returns per unit of risk. Smallcap Sp 600 is currently generating about -0.07 per unit of volatility. If you would invest 3,184 in Smallcap Sp 600 on September 12, 2024 and sell it today you would lose (28.00) from holding Smallcap Sp 600 or give up 0.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 57.14% |
| Values | Daily Returns |
Steel Dynamics vs. Smallcap Sp 600
Performance |
| Timeline |
| Steel Dynamics |
| Smallcap Sp 600 |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
Steel Dynamics and Smallcap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Smallcap
The main advantage of trading using opposite Steel Dynamics and Smallcap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Smallcap 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 Smallcap will offset losses from the drop in Smallcap'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 |
| Smallcap vs. Multisector Bond Sma | Smallcap vs. Versatile Bond Portfolio | Smallcap vs. Artisan High Income | Smallcap vs. Touchstone Premium Yield |
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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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