Correlation Between Algoma Steel and Brother Industries

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

Diversification Opportunities for Algoma Steel and Brother Industries

-0.17

Correlation Coefficient

Algoma Steel  Brother Industries

Good diversification

The 3 months correlation between Algoma and Brother is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Steel Group and Brother Industries Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brother Industries 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 Brother Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brother Industries has no effect on the direction of Algoma Steel i.e., Algoma Steel and Brother Industries go up and down completely randomly.

Pair Corralation between Algoma Steel and Brother Industries

Given the investment horizon of 90 days Algoma Steel Group is expected to generate 0.8 times more return on investment than Brother Industries. However, Algoma Steel Group is 1.26 times less risky than Brother Industries. It trades about -0.01 of its potential returns per unit of risk. Brother Industries Ltd is currently generating about -0.06 per unit of risk. If you would invest  989.00  in Algoma Steel Group on September 18, 2024 and sell it today you would lose (24.00) from holding Algoma Steel Group or give up 2.43% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Algoma Steel Group  vs.  Brother Industries Ltd

Algoma Steel Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algoma Steel Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Algoma Steel is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Brother Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brother Industries Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Algoma Steel and Brother Industries

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

The idea behind Algoma Steel Group and Brother Industries Ltd 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.