Correlation Between Steel Dynamics and First Trust
Can any of the company-specific risk be diversified away by investing in both Steel Dynamics and First Trust 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 First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Steel Dynamics and First Trust Japan, you can compare the effects of market volatilities on Steel Dynamics and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Dynamics and First Trust.
Diversification Opportunities for Steel Dynamics and First Trust
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Steel and First is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and First Trust Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Japan 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 First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Japan has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and First Trust go up and down completely randomly.
Pair Corralation between Steel Dynamics and First Trust
Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the First Trust. In addition to that, Steel Dynamics is 1.28 times more volatile than First Trust Japan. It trades about -0.37 of its total potential returns per unit of risk. First Trust Japan is currently generating about -0.18 per unit of volatility. If you would invest 5,471 in First Trust Japan on January 25, 2024 and sell it today you would lose (204.00) from holding First Trust Japan or give up 3.73% 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. First Trust Japan
Performance |
| Timeline |
| Steel Dynamics |
| First Trust Japan |
Steel Dynamics and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Steel Dynamics and First Trust
The main advantage of trading using opposite Steel Dynamics and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics position performs unexpectedly, First Trust 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 First Trust will offset losses from the drop in First Trust's long position.| Steel Dynamics vs. Cleveland Cliffs | Steel Dynamics vs. Reliance Steel Aluminum | Steel Dynamics vs. Ternium SA ADR |
| First Trust vs. WisdomTree Europe Hedged | First Trust vs. WisdomTree Europe SmallCap | First Trust vs. iShares MSCI Germany |
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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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