Correlation Between Steel Dynamics and Heliostar Metals

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

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

Diversification Opportunities for Steel Dynamics and Heliostar Metals

0.7

Correlation Coefficient

Steel Dynamics  Heliostar Metals

Poor diversification

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

Pair Corralation between Steel Dynamics and Heliostar Metals

Given the investment horizon of 90 days Steel Dynamics is expected to generate 2.6 times less return on investment than Heliostar Metals. But when comparing it to its historical volatility, Steel Dynamics is 1.84 times less risky than Heliostar Metals. It trades about 0.09 of its potential returns per unit of risk. Heliostar Metals is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  41.00  in Heliostar Metals on September 5, 2024 and sell it today you would earn a total of  6.00  from holding Heliostar Metals or generate 14.63% 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.  Heliostar Metals

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.

Heliostar Metals

Risk-Adjusted Performance

16 of 100

Solid

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

Pair Trading with Steel Dynamics and Heliostar Metals

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

The idea behind Steel Dynamics and Heliostar Metals 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.