Correlation Between MDU Resources and Steel Partners

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

By analyzing existing cross correlation between MDU Resources Group and Steel Partners Holdings, you can compare the effects of market volatilities on MDU Resources and Steel Partners 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 MDU Resources with a short position of Steel Partners. Check out your portfolio center. Please also check ongoing floating volatility patterns of MDU Resources and Steel Partners.

Diversification Opportunities for MDU Resources and Steel Partners

0.4

Correlation Coefficient

MDU Resources  Steel Partners

Very weak diversification

The 3 months correlation between MDU and Steel is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding MDU Resources Group and Steel Partners Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Partners Holdings and MDU Resources 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 MDU Resources Group are associated (or correlated) with Steel Partners. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Partners Holdings has no effect on the direction of MDU Resources i.e., MDU Resources and Steel Partners go up and down completely randomly.

Pair Corralation between MDU Resources and Steel Partners

Considering the 90-day investment horizon MDU Resources Group is expected to generate 2.41 times more return on investment than Steel Partners. However, MDU Resources is 2.41 times more volatile than Steel Partners Holdings. It trades about 0.35 of its potential returns per unit of risk. Steel Partners Holdings is currently generating about 0.07 per unit of risk. If you would invest  2,383  in MDU Resources Group on February 14, 2024 and sell it today you would earn a total of  148.00  from holding MDU Resources Group or generate 6.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

MDU Resources Group  vs.  Steel Partners Holdings

MDU Resources Group

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MDU Resources Group are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, MDU Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Steel Partners Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Partners Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Steel Partners is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with MDU Resources and Steel Partners

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

The idea behind MDU Resources Group and Steel Partners Holdings 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.