Correlation Between Steel Dynamics and Stone Harbor

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

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

Diversification Opportunities for Steel Dynamics and Stone Harbor

0.29

Correlation Coefficient

Steel Dynamics  Stone Harbor

Modest diversification

The 3 months correlation between Steel and Stone is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Stone Harbor Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stone Harbor Emerging 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 Stone Harbor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stone Harbor Emerging has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Stone Harbor go up and down completely randomly.

Pair Corralation between Steel Dynamics and Stone Harbor

If you would invest  11,271  in Steel Dynamics on September 4, 2024 and sell it today you would earn a total of  3,210  from holding Steel Dynamics or generate 28.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	1.56%
Values	Daily Returns

Steel Dynamics  vs.  Stone Harbor Emerging

Steel Dynamics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Stone Harbor Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stone Harbor Emerging has generated negative risk-adjusted returns adding no value to fund investors. Despite fairly strong fundamental indicators, Stone Harbor is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Steel Dynamics and Stone Harbor

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

The idea behind Steel Dynamics and Stone Harbor Emerging 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.