Correlation Between Steel Dynamics and Outokumpu Oyj

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

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

Diversification Opportunities for Steel Dynamics and Outokumpu Oyj

-0.07

Correlation Coefficient

Steel Dynamics  Outokumpu Oyj

Good diversification

The 3 months correlation between Steel and Outokumpu is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Outokumpu Oyj ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Outokumpu Oyj ADR 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 Outokumpu Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Outokumpu Oyj ADR has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Outokumpu Oyj go up and down completely randomly.

Pair Corralation between Steel Dynamics and Outokumpu Oyj

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Outokumpu Oyj. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 1.4 times less risky than Outokumpu Oyj. The stock trades about -0.22 of its potential returns per unit of risk. The Outokumpu Oyj ADR is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  202.00  in Outokumpu Oyj ADR on February 3, 2024 and sell it today you would lose (4.00) from holding Outokumpu Oyj ADR or give up 1.98% of portfolio value over 90 days.

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

Steel Dynamics  vs.  Outokumpu Oyj ADR

Steel Dynamics

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain essential indicators, Steel Dynamics may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Outokumpu Oyj ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Outokumpu Oyj ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Outokumpu Oyj is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Steel Dynamics and Outokumpu Oyj

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

The idea behind Steel Dynamics and Outokumpu Oyj ADR 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.