Correlation Between ArcelorMittal and Stelco Holdings

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

By analyzing existing cross correlation between ArcelorMittal SA and Stelco Holdings, you can compare the effects of market volatilities on ArcelorMittal and Stelco Holdings 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 ArcelorMittal with a short position of Stelco Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of ArcelorMittal and Stelco Holdings.

Diversification Opportunities for ArcelorMittal and Stelco Holdings

0.7

Correlation Coefficient

ArcelorMittal  Stelco Holdings

Poor diversification

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

Pair Corralation between ArcelorMittal and Stelco Holdings

Assuming the 90 days horizon ArcelorMittal SA is expected to generate 2.18 times more return on investment than Stelco Holdings. However, ArcelorMittal is 2.18 times more volatile than Stelco Holdings. It trades about 0.12 of its potential returns per unit of risk. Stelco Holdings is currently generating about 0.22 per unit of risk. If you would invest  2,260  in ArcelorMittal SA on October 15, 2024 and sell it today you would earn a total of  279.00  from holding ArcelorMittal SA or generate 12.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	29.09%
Values	Daily Returns

ArcelorMittal SA  vs.  Stelco Holdings

ArcelorMittal SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, ArcelorMittal reported solid returns over the last few months and may actually be approaching a breakup point.

Stelco Holdings

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Stelco Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile technical indicators, Stelco Holdings may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with ArcelorMittal and Stelco Holdings

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

The idea behind ArcelorMittal SA and Stelco Holdings 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.