Correlation Between Algoma Steel and Webco Industries

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

Diversification Opportunities for Algoma Steel and Webco Industries

-0.35

Correlation Coefficient

Algoma Steel  Webco Industries

Very good diversification

The 3 months correlation between Algoma and Webco is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Steel Group and Webco Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webco Industries 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 Webco Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Webco Industries has no effect on the direction of Algoma Steel i.e., Algoma Steel and Webco Industries go up and down completely randomly.

Pair Corralation between Algoma Steel and Webco Industries

If you would invest  173.00  in Algoma Steel Group on September 5, 2024 and sell it today you would earn a total of  15.00  from holding Algoma Steel Group or generate 8.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.59%
Values	Daily Returns

Algoma Steel Group  vs.  Webco Industries

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. In spite of fairly conflicting essential indicators, Algoma Steel showed solid returns over the last few months and may actually be approaching a breakup point.

Webco Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Webco Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Webco Industries is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Algoma Steel and Webco Industries

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

The idea behind Algoma Steel Group and Webco Industries 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.