Correlation Between Algoma Steel and Globex Mining

Can any of the company-specific risk be diversified away by investing in both Algoma Steel and Globex Mining 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 Globex Mining 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 Globex Mining Enterprises, you can compare the effects of market volatilities on Algoma Steel and Globex Mining 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 Globex Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algoma Steel and Globex Mining.

Diversification Opportunities for Algoma Steel and Globex Mining

0.21

Correlation Coefficient

Algoma Steel  Globex Mining

Modest diversification

The 3 months correlation between Algoma and Globex is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Steel Group and Globex Mining Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Globex Mining Enterprises 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 Globex Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Globex Mining Enterprises has no effect on the direction of Algoma Steel i.e., Algoma Steel and Globex Mining go up and down completely randomly.

Pair Corralation between Algoma Steel and Globex Mining

Assuming the 90 days trading horizon Algoma Steel is expected to generate 12.54 times less return on investment than Globex Mining. But when comparing it to its historical volatility, Algoma Steel Group is 1.19 times less risky than Globex Mining. It trades about 0.02 of its potential returns per unit of risk. Globex Mining Enterprises is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  84.00  in Globex Mining Enterprises on September 26, 2024 and sell it today you would earn a total of  32.00  from holding Globex Mining Enterprises or generate 38.1% return on investment over 90 days.

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

Algoma Steel Group  vs.  Globex Mining Enterprises

Algoma Steel Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Steel Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Algoma Steel is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Globex Mining Enterprises

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Globex Mining Enterprises are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Globex Mining displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algoma Steel and Globex Mining

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

The idea behind Algoma Steel Group and Globex Mining Enterprises 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.