Correlation Between Steel Dynamics and Graham Holdings

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

Diversification Opportunities for Steel Dynamics and Graham Holdings

0.88

Correlation Coefficient

Steel Dynamics  Graham Holdings

Very poor diversification

The 3 months correlation between Steel and Graham is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Graham Holdings Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Graham Holdings 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 Graham Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Graham Holdings has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Graham Holdings go up and down completely randomly.

Pair Corralation between Steel Dynamics and Graham Holdings

Given the investment horizon of 90 days Steel Dynamics is expected to generate 1.0 times less return on investment than Graham Holdings. In addition to that, Steel Dynamics is 1.04 times more volatile than Graham Holdings Co. It trades about 0.17 of its total potential returns per unit of risk. Graham Holdings Co is currently generating about 0.18 per unit of volatility. If you would invest  68,832  in Graham Holdings Co on September 4, 2024 and sell it today you would earn a total of  20,168  from holding Graham Holdings Co or generate 29.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Steel Dynamics  vs.  Graham Holdings Co

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.

Graham Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Graham Holdings Co are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Graham Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and Graham Holdings

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

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