Correlation Between Major Drilling and Algoma Steel

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

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

Diversification Opportunities for Major Drilling and Algoma Steel

0.29

Correlation Coefficient

Major Drilling  Algoma Steel

Modest diversification

The 3 months correlation between Major and Algoma is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Major Drilling 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 Major Drilling 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 Major Drilling 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 Major Drilling i.e., Major Drilling and Algoma Steel go up and down completely randomly.

Pair Corralation between Major Drilling and Algoma Steel

Assuming the 90 days trading horizon Major Drilling Group is expected to under-perform the Algoma Steel. In addition to that, Major Drilling is 1.17 times more volatile than Algoma Steel Group. It trades about -0.02 of its total potential returns per unit of risk. Algoma Steel Group is currently generating about 0.04 per unit of volatility. If you would invest  1,016  in Algoma Steel Group on September 4, 2024 and sell it today you would earn a total of  46.00  from holding Algoma Steel Group or generate 4.53% return on investment over 90 days.

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

Major Drilling Group  vs.  Algoma Steel Group

Major Drilling Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Major Drilling Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Major Drilling is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Algoma Steel Group

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Steel Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Algoma Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Major Drilling and Algoma Steel

The main advantage of trading using opposite Major Drilling and Algoma Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Major Drilling 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 Major Drilling 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.