Correlation Between ALGOMA STEEL and Nippon Steel

Can any of the company-specific risk be diversified away by investing in both ALGOMA STEEL and Nippon 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 ALGOMA STEEL and Nippon Steel 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 Nippon Steel, you can compare the effects of market volatilities on ALGOMA STEEL and Nippon 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 ALGOMA STEEL with a short position of Nippon Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALGOMA STEEL and Nippon Steel.

Diversification Opportunities for ALGOMA STEEL and Nippon Steel

-0.7

Correlation Coefficient

ALGOMA STEEL  Nippon Steel

Excellent diversification

The 3 months correlation between ALGOMA and Nippon is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding ALGOMA STEEL GROUP and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel 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 Nippon Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Steel has no effect on the direction of ALGOMA STEEL i.e., ALGOMA STEEL and Nippon Steel go up and down completely randomly.

Pair Corralation between ALGOMA STEEL and Nippon Steel

Assuming the 90 days horizon ALGOMA STEEL GROUP is expected to under-perform the Nippon Steel. In addition to that, ALGOMA STEEL is 2.24 times more volatile than Nippon Steel. It trades about -0.25 of its total potential returns per unit of risk. Nippon Steel is currently generating about 0.08 per unit of volatility. If you would invest  1,868  in Nippon Steel on December 30, 2024 and sell it today you would earn a total of  126.00  from holding Nippon Steel or generate 6.75% return on investment over 90 days.

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

ALGOMA STEEL GROUP  vs.  Nippon Steel

ALGOMA STEEL GROUP

Risk-Adjusted Performance

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Nippon Steel

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Nippon Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Nippon Steel may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with ALGOMA STEEL and Nippon Steel

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

The idea behind ALGOMA STEEL GROUP and Nippon Steel 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.