Correlation Between ArcelorMittal and Algoma Steel

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

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

Diversification Opportunities for ArcelorMittal and Algoma Steel

0.5

Correlation Coefficient

ArcelorMittal  Algoma Steel

Very weak diversification

The 3 months correlation between ArcelorMittal and Algoma is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal SA and Algoma Steel Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Steel Group and ArcelorMittal 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 ArcelorMittal SA are associated (or correlated) with Algoma Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Steel Group has no effect on the direction of ArcelorMittal i.e., ArcelorMittal and Algoma Steel go up and down completely randomly.

Pair Corralation between ArcelorMittal and Algoma Steel

Assuming the 90 days horizon ArcelorMittal SA is expected to generate 1.19 times more return on investment than Algoma Steel. However, ArcelorMittal is 1.19 times more volatile than Algoma Steel Group. It trades about 0.23 of its potential returns per unit of risk. Algoma Steel Group is currently generating about 0.05 per unit of risk. If you would invest  2,260  in ArcelorMittal SA on September 2, 2024 and sell it today you would earn a total of  246.00  from holding ArcelorMittal SA or generate 10.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	66.67%
Values	Daily Returns

ArcelorMittal SA  vs.  Algoma Steel Group

ArcelorMittal SA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, ArcelorMittal reported solid returns over the last few months and may actually be approaching a breakup point.

Algoma Steel Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Steel Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Algoma Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ArcelorMittal and Algoma Steel

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

The idea behind ArcelorMittal SA and Algoma Steel Group 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.