Correlation Between Steel Dynamics and OM Holdings

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

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

Diversification Opportunities for Steel Dynamics and OM Holdings

-0.8

Correlation Coefficient

Steel Dynamics  OM Holdings

Pay attention - limited upside

The 3 months correlation between Steel and OMHLF is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and OM Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OM Holdings Limited 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 OM Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OM Holdings Limited has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and OM Holdings go up and down completely randomly.

Pair Corralation between Steel Dynamics and OM Holdings

Given the investment horizon of 90 days Steel Dynamics is expected to generate 0.61 times more return on investment than OM Holdings. However, Steel Dynamics is 1.64 times less risky than OM Holdings. It trades about 0.17 of its potential returns per unit of risk. OM Holdings Limited is currently generating about -0.12 per unit of risk. If you would invest  11,354  in Steel Dynamics on September 3, 2024 and sell it today you would earn a total of  3,173  from holding Steel Dynamics or generate 27.95% return on investment over 90 days.

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

Steel Dynamics  vs.  OM Holdings Limited

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.

OM Holdings Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OM Holdings Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Steel Dynamics and OM Holdings

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

The idea behind Steel Dynamics and OM Holdings Limited 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.