Correlation Between Cleveland Cliffs and Steel Dynamics

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

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

Diversification Opportunities for Cleveland Cliffs and Steel Dynamics

0.73

Correlation Coefficient

Cleveland Cliffs  Steel Dynamics

Poor diversification

The 3 months correlation between Cleveland and Steel is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Cleveland Cliffs and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics and Cleveland Cliffs 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 Cleveland Cliffs 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 Cleveland Cliffs i.e., Cleveland Cliffs and Steel Dynamics go up and down completely randomly.

Pair Corralation between Cleveland Cliffs and Steel Dynamics

Considering the 90-day investment horizon Cleveland Cliffs is expected to under-perform the Steel Dynamics. In addition to that, Cleveland Cliffs is 1.57 times more volatile than Steel Dynamics. It trades about -0.03 of its total potential returns per unit of risk. Steel Dynamics is currently generating about 0.04 per unit of volatility. If you would invest  9,431  in Steel Dynamics on February 9, 2025 and sell it today you would earn a total of  3,620  from holding Steel Dynamics or generate 38.38% return on investment over 90 days.

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

Cleveland Cliffs  vs.  Steel Dynamics

Cleveland Cliffs

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cleveland Cliffs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in June 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Steel Dynamics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Steel Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Steel Dynamics is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cleveland Cliffs and Steel Dynamics

The main advantage of trading using opposite Cleveland Cliffs and Steel Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cleveland Cliffs 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 Cleveland Cliffs 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.