Correlation Between Cleveland Cliffs and Nucor Corp

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

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

Diversification Opportunities for Cleveland Cliffs and Nucor Corp

0.97

Correlation Coefficient

Cleveland Cliffs  Nucor Corp

Almost no diversification

The 3 months correlation between Cleveland and Nucor is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Cleveland Cliffs and Nucor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor Corp 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 Nucor Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor Corp has no effect on the direction of Cleveland Cliffs i.e., Cleveland Cliffs and Nucor Corp go up and down completely randomly.

Pair Corralation between Cleveland Cliffs and Nucor Corp

Considering the 90-day investment horizon Cleveland Cliffs is expected to under-perform the Nucor Corp. In addition to that, Cleveland Cliffs is 1.42 times more volatile than Nucor Corp. It trades about -0.06 of its total potential returns per unit of risk. Nucor Corp is currently generating about -0.06 per unit of volatility. If you would invest  18,577  in Nucor Corp on February 8, 2024 and sell it today you would lose (1,398) from holding Nucor Corp or give up 7.53% of portfolio value over 90 days.

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

Cleveland Cliffs  vs.  Nucor Corp

Cleveland Cliffs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cleveland Cliffs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Nucor Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nucor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Cleveland Cliffs and Nucor Corp

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

The idea behind Cleveland Cliffs and Nucor Corp 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.