Correlation Between POSCO Holdings and Commercial Metals

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

By analyzing existing cross correlation between POSCO Holdings and Commercial Metals, you can compare the effects of market volatilities on POSCO Holdings and Commercial Metals 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 POSCO Holdings with a short position of Commercial Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of POSCO Holdings and Commercial Metals.

Diversification Opportunities for POSCO Holdings and Commercial Metals

-0.38

Correlation Coefficient

POSCO Holdings  Commercial Metals

Very good diversification

The 3 months correlation between POSCO and Commercial is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding POSCO Holdings and Commercial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Metals and POSCO Holdings 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 POSCO Holdings are associated (or correlated) with Commercial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Metals has no effect on the direction of POSCO Holdings i.e., POSCO Holdings and Commercial Metals go up and down completely randomly.

Pair Corralation between POSCO Holdings and Commercial Metals

Considering the 90-day investment horizon POSCO Holdings is expected to generate 1.7 times more return on investment than Commercial Metals. However, POSCO Holdings is 1.7 times more volatile than Commercial Metals. It trades about -0.1 of its potential returns per unit of risk. Commercial Metals is currently generating about -0.27 per unit of risk. If you would invest  7,579  in POSCO Holdings on February 2, 2024 and sell it today you would lose (375.00) from holding POSCO Holdings or give up 4.95% of portfolio value over 90 days.

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

POSCO Holdings  vs.  Commercial Metals

POSCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days POSCO Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Commercial Metals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial Metals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal primary indicators, Commercial Metals may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with POSCO Holdings and Commercial Metals

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

The idea behind POSCO Holdings and Commercial Metals 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.