Correlation Between Steel Dynamics and Bancorp

Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and 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 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 The Bancorp, you can compare the effects of market volatilities on Steel Dynamics and 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 Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and Bancorp.

Diversification Opportunities for Steel Dynamics and Bancorp

0.67

Correlation Coefficient

Steel Dynamics  Bancorp

Poor diversification

The 3 months correlation between Steel and Bancorp is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and The Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 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 Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bancorp has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Bancorp go up and down completely randomly.

Pair Corralation between Steel Dynamics and Bancorp

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 1.91 times less risky than Bancorp. The stock trades about -0.28 of its potential returns per unit of risk. The The Bancorp is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5,459  in The Bancorp on September 9, 2024 and sell it today you would earn a total of  297.00  from holding The Bancorp or generate 5.44% 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.  The 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.

Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Bancorp

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

The idea behind Steel Dynamics and The 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.