Correlation Between Algoma Steel and North Arrow

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

Diversification Opportunities for Algoma Steel and North Arrow

-0.41

Correlation Coefficient

Algoma Steel  North Arrow

Very good diversification

The 3 months correlation between Algoma and North is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Steel Group and North Arrow Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North Arrow Minerals 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 North Arrow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North Arrow Minerals has no effect on the direction of Algoma Steel i.e., Algoma Steel and North Arrow go up and down completely randomly.

Pair Corralation between Algoma Steel and North Arrow

Given the investment horizon of 90 days Algoma Steel is expected to generate 4.25 times less return on investment than North Arrow. But when comparing it to its historical volatility, Algoma Steel Group is 5.7 times less risky than North Arrow. It trades about 0.06 of its potential returns per unit of risk. North Arrow Minerals is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  20.00  in North Arrow Minerals on September 3, 2024 and sell it today you would lose (2.00) from holding North Arrow Minerals or give up 10.0% 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.  North Arrow Minerals

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. Despite quite weak basic indicators, Algoma Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

North Arrow Minerals

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in North Arrow Minerals are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, North Arrow showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algoma Steel and North Arrow

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

The idea behind Algoma Steel Group and North Arrow Minerals 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..