Correlation Between Algoma Steel and Labrador Iron

Can any of the company-specific risk be diversified away by investing in both Algoma Steel and Labrador Iron 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 Labrador Iron 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 Labrador Iron Ore, you can compare the effects of market volatilities on Algoma Steel and Labrador Iron 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 Labrador Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Algoma Steel and Labrador Iron.

Diversification Opportunities for Algoma Steel and Labrador Iron

-0.46

Correlation Coefficient

Algoma Steel  Labrador Iron

Very good diversification

The 3 months correlation between Algoma and Labrador is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Steel Group and Labrador Iron Ore in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Labrador Iron Ore 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 Labrador Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Labrador Iron Ore has no effect on the direction of Algoma Steel i.e., Algoma Steel and Labrador Iron go up and down completely randomly.

Pair Corralation between Algoma Steel and Labrador Iron

Assuming the 90 days trading horizon Algoma Steel Group is expected to under-perform the Labrador Iron. In addition to that, Algoma Steel is 2.9 times more volatile than Labrador Iron Ore. It trades about -0.4 of its total potential returns per unit of risk. Labrador Iron Ore is currently generating about -0.17 per unit of volatility. If you would invest  3,040  in Labrador Iron Ore on December 5, 2024 and sell it today you would lose (96.00) from holding Labrador Iron Ore or give up 3.16% of portfolio value over 90 days.

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

Algoma Steel Group  vs.  Labrador Iron Ore

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. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Labrador Iron Ore

Risk-Adjusted Performance

Very Weak

Over the last 90 days Labrador Iron Ore has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Labrador Iron is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Algoma Steel and Labrador Iron

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

The idea behind Algoma Steel Group and Labrador Iron Ore 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 Global Correlations module to find global opportunities by holding instruments from different markets.