Correlation Between Steel Dynamics and Provident Bancorp

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

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

Diversification Opportunities for Steel Dynamics and Provident Bancorp

0.65

Correlation Coefficient

Steel Dynamics  Provident Bancorp

Poor diversification

The 3 months correlation between Steel and Provident is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Provident Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident Bancorp 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 Provident Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Bancorp has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Provident Bancorp go up and down completely randomly.

Pair Corralation between Steel Dynamics and Provident Bancorp

Given the investment horizon of 90 days Steel Dynamics is expected to generate 0.95 times more return on investment than Provident Bancorp. However, Steel Dynamics is 1.06 times less risky than Provident Bancorp. It trades about 0.05 of its potential returns per unit of risk. Provident Bancorp is currently generating about 0.05 per unit of risk. If you would invest  10,035  in Steel Dynamics on September 12, 2024 and sell it today you would earn a total of  3,494  from holding Steel Dynamics or generate 34.82% 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.  Provident Bancorp

Steel Dynamics

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 11 (%) 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.

Provident Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting fundamental drivers, Provident Bancorp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Provident Bancorp

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

The idea behind Steel Dynamics and Provident Bancorp 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.