Correlation Between Commercial Metals and POSCO Holdings

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

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

Diversification Opportunities for Commercial Metals and POSCO Holdings

-0.17

Correlation Coefficient

Commercial Metals  POSCO Holdings

Good diversification

The 3 months correlation between Commercial and POSCO is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Metals and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO Holdings and Commercial Metals 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 Commercial Metals are associated (or correlated) with POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of Commercial Metals i.e., Commercial Metals and POSCO Holdings go up and down completely randomly.

Pair Corralation between Commercial Metals and POSCO Holdings

Considering the 90-day investment horizon Commercial Metals is expected to under-perform the POSCO Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Commercial Metals is 1.08 times less risky than POSCO Holdings. The stock trades about -0.09 of its potential returns per unit of risk. The POSCO Holdings is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,538  in POSCO Holdings on January 18, 2025 and sell it today you would lose (54.00) from holding POSCO Holdings or give up 1.19% of portfolio value over 90 days.

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

Commercial Metals  vs.  POSCO Holdings

Commercial Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commercial Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in May 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

POSCO Holdings

Risk-Adjusted Performance

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 fairly strong forward-looking signals, POSCO Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Commercial Metals and POSCO Holdings

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

The idea behind Commercial Metals and POSCO Holdings 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.