Correlation Between AK Steel and Steel Dynamics

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

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

Diversification Opportunities for AK Steel and Steel Dynamics

0.0

Correlation Coefficient

AK Steel  Steel Dynamics

Pay attention - limited upside

The 3 months correlation between AKS and Steel is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding AK Steel Holding and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and AK Steel 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 AK Steel Holding are associated (or correlated) with Steel Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Dynamics has no effect on the direction of AK Steel i.e., AK Steel and Steel Dynamics go up and down completely randomly.

Pair Corralation between AK Steel and Steel Dynamics

If you would invest  7,302  in Steel Dynamics on January 31, 2024 and sell it today you would earn a total of  6,205  from holding Steel Dynamics or generate 84.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

AK Steel Holding  vs.  Steel Dynamics

AK Steel Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AK Steel Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking signals, AK Steel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Steel Dynamics

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with AK Steel and Steel Dynamics

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

The idea behind AK Steel Holding and Steel Dynamics 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.