Correlation Between Nippon Steel and ALGOMA STEEL

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

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

Diversification Opportunities for Nippon Steel and ALGOMA STEEL

0.11

Correlation Coefficient

Nippon Steel  ALGOMA STEEL

Average diversification

The 3 months correlation between Nippon and ALGOMA is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Nippon Steel 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 Nippon 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 Nippon Steel 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 Nippon Steel i.e., Nippon Steel and ALGOMA STEEL go up and down completely randomly.

Pair Corralation between Nippon Steel and ALGOMA STEEL

Assuming the 90 days horizon Nippon Steel is expected to generate 4.32 times less return on investment than ALGOMA STEEL. In addition to that, Nippon Steel is 1.7 times more volatile than ALGOMA STEEL GROUP. It trades about 0.01 of its total potential returns per unit of risk. ALGOMA STEEL GROUP is currently generating about 0.05 per unit of volatility. If you would invest  945.00  in ALGOMA STEEL GROUP on September 2, 2024 and sell it today you would earn a total of  55.00  from holding ALGOMA STEEL GROUP or generate 5.82% return on investment over 90 days.

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

Nippon Steel  vs.  ALGOMA STEEL GROUP

Nippon Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Nippon Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

ALGOMA STEEL GROUP

Risk-Adjusted Performance

3 of 100

Insignificant

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 nearly fragile basic indicators, ALGOMA STEEL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Nippon Steel and ALGOMA STEEL

The main advantage of trading using opposite Nippon Steel and ALGOMA STEEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nippon Steel 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 Nippon Steel 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.