Correlation Between ArcelorMittal and POSCO Holdings

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

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

Diversification Opportunities for ArcelorMittal and POSCO Holdings

-0.52

Correlation Coefficient

ArcelorMittal  POSCO Holdings

Excellent diversification

The 3 months correlation between ArcelorMittal and POSCO is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO 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 are associated (or correlated) with POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of ArcelorMittal i.e., ArcelorMittal and POSCO Holdings go up and down completely randomly.

Pair Corralation between ArcelorMittal and POSCO Holdings

Assuming the 90 days trading horizon ArcelorMittal is expected to generate 0.48 times more return on investment than POSCO Holdings. However, ArcelorMittal is 2.1 times less risky than POSCO Holdings. It trades about -0.29 of its potential returns per unit of risk. POSCO Holdings is currently generating about -0.22 per unit of risk. If you would invest  2,420  in ArcelorMittal on October 1, 2024 and sell it today you would lose (200.00) from holding ArcelorMittal or give up 8.26% of portfolio value over 90 days.

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

ArcelorMittal  vs.  POSCO Holdings

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.

POSCO Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days POSCO Holdings 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with ArcelorMittal and POSCO Holdings

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

The idea behind ArcelorMittal and POSCO 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.