Correlation Between Steel Dynamics and Sinopec Oilfield
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Sinopec Oilfield 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 Sinopec Oilfield into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and Sinopec Oilfield Service, you can compare the effects of market volatilities on Steel Dynamics and Sinopec Oilfield 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 Sinopec Oilfield. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Sinopec Oilfield.
Diversification Opportunities for Steel Dynamics and Sinopec Oilfield
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Steel and Sinopec is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Sinopec Oilfield Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sinopec Oilfield Service 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 Sinopec Oilfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sinopec Oilfield Service has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Sinopec Oilfield go up and down completely randomly.
Pair Corralation between Steel Dynamics and Sinopec Oilfield
Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.7 times less return on investment than Sinopec Oilfield. But when comparing it to its historical volatility, Steel Dynamics is 2.83 times less risky than Sinopec Oilfield. It trades about 0.04 of its potential returns per unit of risk. Sinopec Oilfield Service is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 6.81 in Sinopec Oilfield Service on September 4, 2024 and sell it today you would lose (0.27) from holding Sinopec Oilfield Service or give up 3.96% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Steel Dynamics vs. Sinopec Oilfield Service
Performance |
| Timeline |
| Steel Dynamics |
| Sinopec Oilfield Service |
Steel Dynamics and Sinopec Oilfield Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and Sinopec Oilfield
The main advantage of trading using opposite Steel Dynamics and Sinopec Oilfield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Sinopec Oilfield 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 Sinopec Oilfield will offset losses from the drop in Sinopec Oilfield'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 |
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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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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