Correlation Between Algoma Steel and Tesla

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

Diversification Opportunities for Algoma Steel and Tesla

0.7

Correlation Coefficient

Algoma Steel  Tesla

Poor diversification

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

Pair Corralation between Algoma Steel and Tesla

Assuming the 90 days trading horizon Algoma Steel is expected to generate 1.15 times less return on investment than Tesla. But when comparing it to its historical volatility, Algoma Steel Group is 1.58 times less risky than Tesla. It trades about 0.07 of its potential returns per unit of risk. Tesla Inc CDR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,464  in Tesla Inc CDR on September 12, 2024 and sell it today you would earn a total of  1,194  from holding Tesla Inc CDR or generate 48.46% return on investment over 90 days.

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

Algoma Steel Group  vs.  Tesla Inc CDR

Algoma Steel Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Steel Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Algoma Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tesla Inc CDR

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc CDR are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Tesla exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algoma Steel and Tesla

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

The idea behind Algoma Steel Group and Tesla Inc CDR 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 Stocks Directory module to find actively traded stocks across global markets.