Correlation Between ALGOMA STEEL and Lancashire Holdings

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

By analyzing existing cross correlation between ALGOMA STEEL GROUP and Lancashire Holdings Limited, you can compare the effects of market volatilities on ALGOMA STEEL and Lancashire Holdings 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 ALGOMA STEEL with a short position of Lancashire Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALGOMA STEEL and Lancashire Holdings.

Diversification Opportunities for ALGOMA STEEL and Lancashire Holdings

0.03

Correlation Coefficient

ALGOMA STEEL  Lancashire Holdings

Significant diversification

The 3 months correlation between ALGOMA and Lancashire is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding ALGOMA STEEL GROUP and Lancashire Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lancashire Holdings and ALGOMA STEEL 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 ALGOMA STEEL GROUP are associated (or correlated) with Lancashire Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lancashire Holdings has no effect on the direction of ALGOMA STEEL i.e., ALGOMA STEEL and Lancashire Holdings go up and down completely randomly.

Pair Corralation between ALGOMA STEEL and Lancashire Holdings

Assuming the 90 days horizon ALGOMA STEEL GROUP is expected to generate 0.89 times more return on investment than Lancashire Holdings. However, ALGOMA STEEL GROUP is 1.13 times less risky than Lancashire Holdings. It trades about 0.03 of its potential returns per unit of risk. Lancashire Holdings Limited is currently generating about 0.02 per unit of risk. If you would invest  861.00  in ALGOMA STEEL GROUP on September 23, 2024 and sell it today you would earn a total of  29.00  from holding ALGOMA STEEL GROUP or generate 3.37% return on investment over 90 days.

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

ALGOMA STEEL GROUP  vs.  Lancashire Holdings Limited

ALGOMA STEEL GROUP

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ALGOMA STEEL GROUP are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, ALGOMA STEEL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Lancashire Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lancashire Holdings Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Lancashire Holdings is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ALGOMA STEEL and Lancashire Holdings

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

The idea behind ALGOMA STEEL GROUP and Lancashire Holdings Limited 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.