Correlation Between Steel Dynamics and Manulife Financial

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

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

Diversification Opportunities for Steel Dynamics and Manulife Financial

0.77

Correlation Coefficient

Steel Dynamics  Manulife Financial

Poor diversification

The 3 months correlation between Steel and Manulife is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Manulife Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manulife Financial Corp 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 Manulife Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manulife Financial Corp has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Manulife Financial go up and down completely randomly.

Pair Corralation between Steel Dynamics and Manulife Financial

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Manulife Financial. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 1.21 times less risky than Manulife Financial. The stock trades about -0.22 of its potential returns per unit of risk. The Manulife Financial Corp is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  2,427  in Manulife Financial Corp on January 24, 2024 and sell it today you would lose (81.00) from holding Manulife Financial Corp or give up 3.34% of portfolio value over 90 days.

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

Steel Dynamics  vs.  Manulife Financial Corp

Steel Dynamics

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, Steel Dynamics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Manulife Financial Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Manulife Financial Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Manulife Financial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Steel Dynamics and Manulife Financial

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

The idea behind Steel Dynamics and Manulife Financial 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.

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.