Correlation Between Huadi International and Algoma Steel

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

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

Diversification Opportunities for Huadi International and Algoma Steel

-0.16

Correlation Coefficient

Huadi International  Algoma Steel

Good diversification

The 3 months correlation between Huadi and Algoma is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Huadi International Group 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 Huadi International 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 Huadi International Group 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 Huadi International i.e., Huadi International and Algoma Steel go up and down completely randomly.

Pair Corralation between Huadi International and Algoma Steel

Given the investment horizon of 90 days Huadi International Group is expected to generate 1.85 times more return on investment than Algoma Steel. However, Huadi International is 1.85 times more volatile than Algoma Steel Group. It trades about -0.28 of its potential returns per unit of risk. Algoma Steel Group is currently generating about -0.53 per unit of risk. If you would invest  195.00  in Huadi International Group on September 23, 2024 and sell it today you would lose (32.00) from holding Huadi International Group or give up 16.41% of portfolio value over 90 days.

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

Huadi International Group  vs.  Algoma Steel Group

Huadi International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Huadi International Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Algoma Steel Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algoma Steel Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Algoma Steel is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Huadi International and Algoma Steel

The main advantage of trading using opposite Huadi International and Algoma Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Huadi International 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 Huadi International Group 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.