Correlation Between Steel Dynamics and Searchlight Resources
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Searchlight Resources 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 Searchlight Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Searchlight Resources, you can compare the effects of market volatilities on Steel Dynamics and Searchlight Resources 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 Searchlight Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Searchlight Resources.
Diversification Opportunities for Steel Dynamics and Searchlight Resources
-0.67 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Steel and Searchlight is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Searchlight Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Searchlight Resources 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 Searchlight Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Searchlight Resources has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Searchlight Resources go up and down completely randomly.
Pair Corralation between Steel Dynamics and Searchlight Resources
Given the investment horizon of 90 days Steel Dynamics is expected to generate 5.5 times less return on investment than Searchlight Resources. But when comparing it to its historical volatility, Steel Dynamics is 6.25 times less risky than Searchlight Resources. It trades about 0.04 of its potential returns per unit of risk. Searchlight Resources is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 0.87 in Searchlight Resources on August 25, 2024 and sell it today you would lose (0.42) from holding Searchlight Resources or give up 48.28% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 99.21% |
| Values | Daily Returns |
Steel Dynamics vs. Searchlight Resources
Performance |
| Timeline |
| Steel Dynamics |
| Searchlight Resources |
Steel Dynamics and Searchlight Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Searchlight Resources
The main advantage of trading using opposite Steel Dynamics and Searchlight Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Searchlight Resources 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 Searchlight Resources will offset losses from the drop in Searchlight Resources' long position.The idea behind Steel Dynamics and Searchlight Resources pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Searchlight Resources vs. Norra Metals Corp | Searchlight Resources vs. ZincX Resources Corp | Searchlight Resources vs. Nuinsco Resources Limited | Searchlight Resources vs. South Star Battery |
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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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