Correlation Between United States and Commercial Metals
Can any of the company-specific risk be diversified away by investing in both United States and Commercial Metals 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 United States and Commercial Metals into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United States Steel and Commercial Metals, you can compare the effects of market volatilities on United States and Commercial Metals 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 United States with a short position of Commercial Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Commercial Metals.
Diversification Opportunities for United States and Commercial Metals
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between United and Commercial is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Commercial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Metals and United States 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 United States Steel are associated (or correlated) with Commercial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Metals has no effect on the direction of United States i.e., United States and Commercial Metals go up and down completely randomly.
Pair Corralation between United States and Commercial Metals
Taking into account the 90-day investment horizon United States is expected to generate 1.82 times less return on investment than Commercial Metals. In addition to that, United States is 1.5 times more volatile than Commercial Metals. It trades about 0.03 of its total potential returns per unit of risk. Commercial Metals is currently generating about 0.07 per unit of volatility. If you would invest 4,579 in Commercial Metals on August 27, 2024 and sell it today you would earn a total of 1,543 from holding Commercial Metals or generate 33.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
United States Steel vs. Commercial Metals
Performance |
| Timeline |
| United States Steel |
| Commercial Metals |
United States and Commercial Metals Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United States and Commercial Metals
The main advantage of trading using opposite United States and Commercial Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States position performs unexpectedly, Commercial Metals 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 Commercial Metals will offset losses from the drop in Commercial Metals' long position.| United States vs. Nucor Corp | United States vs. Steel Dynamics | United States vs. ArcelorMittal SA ADR | United States vs. Gerdau SA ADR |
| Commercial Metals vs. Olympic Steel | Commercial Metals vs. Steel Dynamics | Commercial Metals vs. Nucor Corp | Commercial Metals vs. Universal Stainless Alloy |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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