Correlation Between Steel Dynamics and Tiangong International

Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and Tiangong International 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 Tiangong International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Steel Dynamics and Tiangong International, you can compare the effects of market volatilities on Steel Dynamics and Tiangong International 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 Tiangong International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Tiangong International.

Diversification Opportunities for Steel Dynamics and Tiangong International

0.7

Correlation Coefficient

Steel Dynamics  Tiangong International

Poor diversification

The 3 months correlation between Steel and Tiangong is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Tiangong International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tiangong International 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 Tiangong International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tiangong International has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Tiangong International go up and down completely randomly.

Pair Corralation between Steel Dynamics and Tiangong International

Assuming the 90 days horizon Steel Dynamics is expected to generate 1.67 times less return on investment than Tiangong International. But when comparing it to its historical volatility, Steel Dynamics is 1.71 times less risky than Tiangong International. It trades about 0.21 of its potential returns per unit of risk. Tiangong International is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  16.00  in Tiangong International on September 5, 2024 and sell it today you would earn a total of  10.00  from holding Tiangong International or generate 62.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Steel Dynamics  vs.  Tiangong International

Steel Dynamics

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Steel Dynamics reported solid returns over the last few months and may actually be approaching a breakup point.

Tiangong International

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tiangong International are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Tiangong International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Tiangong International

The main advantage of trading using opposite Steel Dynamics and Tiangong International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, Tiangong International 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 Tiangong International will offset losses from the drop in Tiangong International's long position.

The idea behind Steel Dynamics and Tiangong International 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.

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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.