Correlation Between Steel Dynamics and US Gold

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

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

Diversification Opportunities for Steel Dynamics and US Gold

0.57

Correlation Coefficient

Steel Dynamics  US Gold

Very weak diversification

The 3 months correlation between Steel and USAU is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and US Gold Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Gold Corp 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 US Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Gold Corp has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and US Gold go up and down completely randomly.

Pair Corralation between Steel Dynamics and US Gold

Given the investment horizon of 90 days Steel Dynamics is expected to generate 21.11 times less return on investment than US Gold. But when comparing it to its historical volatility, Steel Dynamics is 1.54 times less risky than US Gold. It trades about 0.01 of its potential returns per unit of risk. US Gold Corp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  561.00  in US Gold Corp on September 19, 2024 and sell it today you would earn a total of  109.00  from holding US Gold Corp or generate 19.43% return on investment over 90 days.

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

Steel Dynamics  vs.  US Gold Corp

Steel Dynamics

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Steel Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Steel Dynamics is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

US Gold Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in US Gold Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, US Gold unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and US Gold

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

The idea behind Steel Dynamics and US Gold Corp 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.