Correlation Between Steel Dynamics and Teradyne

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

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

Diversification Opportunities for Steel Dynamics and Teradyne

0.45

Correlation Coefficient

Steel Dynamics  Teradyne

Very weak diversification

The 3 months correlation between Steel and Teradyne is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics and Teradyne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradyne 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 Teradyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradyne has no effect on the direction of Steel Dynamics i.e., Steel Dynamics and Teradyne go up and down completely randomly.

Pair Corralation between Steel Dynamics and Teradyne

Given the investment horizon of 90 days Steel Dynamics is expected to under-perform the Teradyne. But the stock apears to be less risky and, when comparing its historical volatility, Steel Dynamics is 2.53 times less risky than Teradyne. The stock trades about -0.05 of its potential returns per unit of risk. The Teradyne is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  10,348  in Teradyne on January 19, 2024 and sell it today you would lose (141.00) from holding Teradyne or give up 1.36% of portfolio value over 90 days.

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

Steel Dynamics  vs.  Teradyne

Steel Dynamics

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Steel Dynamics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Teradyne has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Teradyne is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Steel Dynamics and Teradyne

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

The idea behind Steel Dynamics and Teradyne 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..