Correlation Between Algoma Steel and Pure Energy

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

Diversification Opportunities for Algoma Steel and Pure Energy

0.11

Correlation Coefficient

Algoma Steel  Pure Energy

Average diversification

The 3 months correlation between Algoma and Pure is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Steel Group and Pure Energy Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pure Energy 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 Pure Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pure Energy Minerals has no effect on the direction of Algoma Steel i.e., Algoma Steel and Pure Energy go up and down completely randomly.

Pair Corralation between Algoma Steel and Pure Energy

Given the investment horizon of 90 days Algoma Steel is expected to generate 6.05 times less return on investment than Pure Energy. But when comparing it to its historical volatility, Algoma Steel Group is 3.19 times less risky than Pure Energy. It trades about 0.04 of its potential returns per unit of risk. Pure Energy Minerals is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  27.00  in Pure Energy Minerals on September 4, 2024 and sell it today you would earn a total of  5.00  from holding Pure Energy Minerals or generate 18.52% return on investment over 90 days.

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

Algoma Steel Group  vs.  Pure Energy Minerals

Algoma Steel Group

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Algoma Steel Group are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Algoma Steel is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pure Energy Minerals

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Energy Minerals are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Pure Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algoma Steel and Pure Energy

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

The idea behind Algoma Steel Group and Pure Energy 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.