Correlation Between STEEL DYNAMICS and Waste Management

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

By analyzing existing cross correlation between STEEL DYNAMICS and Waste Management, you can compare the effects of market volatilities on STEEL DYNAMICS and Waste Management 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 Waste Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of STEEL DYNAMICS and Waste Management.

Diversification Opportunities for STEEL DYNAMICS and Waste Management

0.86

Correlation Coefficient

STEEL DYNAMICS  Waste Management

Very poor diversification

The 3 months correlation between STEEL and Waste is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding STEEL DYNAMICS and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of STEEL DYNAMICS i.e., STEEL DYNAMICS and Waste Management go up and down completely randomly.

Pair Corralation between STEEL DYNAMICS and Waste Management

Assuming the 90 days trading horizon STEEL DYNAMICS is expected to under-perform the Waste Management. In addition to that, STEEL DYNAMICS is 2.7 times more volatile than Waste Management. It trades about -0.02 of its total potential returns per unit of risk. Waste Management is currently generating about -0.05 per unit of volatility. If you would invest  21,541  in Waste Management on February 3, 2025 and sell it today you would lose (891.00) from holding Waste Management or give up 4.14% of portfolio value over 90 days.

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

STEEL DYNAMICS  vs.  Waste Management

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 comparatively stable basic indicators, STEEL DYNAMICS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Waste Management

Risk-Adjusted Performance

Very Weak

Over the last 90 days Waste Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Waste Management is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with STEEL DYNAMICS and Waste Management

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

The idea behind STEEL DYNAMICS and Waste Management 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.

Check out your portfolio center.

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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.