Correlation Between Algoma Steel and Nucor Corp

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

Diversification Opportunities for Algoma Steel and Nucor Corp

0.6

Correlation Coefficient

Algoma Steel  Nucor Corp

Poor diversification

The 3 months correlation between Algoma and Nucor is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Steel Group and Nucor Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor Corp 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 Nucor Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor Corp has no effect on the direction of Algoma Steel i.e., Algoma Steel and Nucor Corp go up and down completely randomly.

Pair Corralation between Algoma Steel and Nucor Corp

Given the investment horizon of 90 days Algoma Steel Group is expected to generate 0.88 times more return on investment than Nucor Corp. However, Algoma Steel Group is 1.13 times less risky than Nucor Corp. It trades about -0.23 of its potential returns per unit of risk. Nucor Corp is currently generating about -0.69 per unit of risk. If you would invest  1,062  in Algoma Steel Group on October 4, 2024 and sell it today you would lose (84.00) from holding Algoma Steel Group or give up 7.91% of portfolio value over 90 days.

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

Algoma Steel Group  vs.  Nucor Corp

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.

Nucor Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nucor Corp 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 rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Algoma Steel and Nucor Corp

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

The idea behind Algoma Steel Group and Nucor Corp 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.