Correlation Between ArcelorMittal and Iron Road

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

By analyzing existing cross correlation between ArcelorMittal and Iron Road Limited, you can compare the effects of market volatilities on ArcelorMittal and Iron Road 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 Iron Road. Check out your portfolio center. Please also check ongoing floating volatility patterns of ArcelorMittal and Iron Road.

Diversification Opportunities for ArcelorMittal and Iron Road

-0.23

Correlation Coefficient

ArcelorMittal  Iron Road

Very good diversification

The 3 months correlation between ArcelorMittal and Iron is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal and Iron Road Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iron Road Limited 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 are associated (or correlated) with Iron Road. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iron Road Limited has no effect on the direction of ArcelorMittal i.e., ArcelorMittal and Iron Road go up and down completely randomly.

Pair Corralation between ArcelorMittal and Iron Road

Assuming the 90 days trading horizon ArcelorMittal is expected to under-perform the Iron Road. But the stock apears to be less risky and, when comparing its historical volatility, ArcelorMittal is 1.64 times less risky than Iron Road. The stock trades about -0.29 of its potential returns per unit of risk. The Iron Road Limited is currently generating about -0.16 of returns per unit of risk over similar time horizon. If you would invest  2.55  in Iron Road Limited on October 1, 2024 and sell it today you would lose (0.20) from holding Iron Road Limited or give up 7.84% of portfolio value over 90 days.

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

ArcelorMittal  vs.  Iron Road Limited

ArcelorMittal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Iron Road Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with ArcelorMittal and Iron Road

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

The idea behind ArcelorMittal and Iron Road Limited 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.