Correlation Between Steel Dynamics and IFAN Financial

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

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

Diversification Opportunities for Steel Dynamics and IFAN Financial

-0.09

Correlation Coefficient

Steel Dynamics  IFAN Financial

Good diversification

The 3 months correlation between Steel and IFAN is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and IFAN Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IFAN Financial 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 IFAN Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IFAN Financial has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and IFAN Financial go up and down completely randomly.

Pair Corralation between Steel Dynamics and IFAN Financial

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the IFAN Financial. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 31.06 times less risky than IFAN Financial. The stock trades about -0.26 of its potential returns per unit of risk. The IFAN Financial is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  0.01  in IFAN Financial on September 13, 2024 and sell it today you would earn a total of  0.01  from holding IFAN Financial or generate 100.0% return on investment over 90 days.

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

Steel Dynamics  vs.  IFAN Financial

Steel Dynamics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 9 (%) 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.

IFAN Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IFAN Financial are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, IFAN Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and IFAN Financial

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

The idea behind Steel Dynamics and IFAN Financial 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.

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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.