Correlation Between ArcelorMittal and Champion Iron

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

By analyzing existing cross correlation between ArcelorMittal SA and Champion Iron Limited, you can compare the effects of market volatilities on ArcelorMittal and Champion Iron 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 Champion Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of ArcelorMittal and Champion Iron.

Diversification Opportunities for ArcelorMittal and Champion Iron

-0.2

Correlation Coefficient

ArcelorMittal  Champion Iron

Good diversification

The 3 months correlation between ArcelorMittal and Champion is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal SA and Champion Iron Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Iron Limited 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 Champion Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Iron Limited has no effect on the direction of ArcelorMittal i.e., ArcelorMittal and Champion Iron go up and down completely randomly.

Pair Corralation between ArcelorMittal and Champion Iron

Assuming the 90 days horizon ArcelorMittal is expected to generate 1.04 times less return on investment than Champion Iron. But when comparing it to its historical volatility, ArcelorMittal SA is 2.47 times less risky than Champion Iron. It trades about 0.16 of its potential returns per unit of risk. Champion Iron Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  344.00  in Champion Iron Limited on September 15, 2024 and sell it today you would earn a total of  51.00  from holding Champion Iron Limited or generate 14.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.63%
Values	Daily Returns

ArcelorMittal SA  vs.  Champion Iron Limited

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 uncertain basic indicators, ArcelorMittal reported solid returns over the last few months and may actually be approaching a breakup point.

Champion Iron Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Champion Iron Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Champion Iron reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ArcelorMittal and Champion Iron

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

The idea behind ArcelorMittal SA and Champion Iron 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.