Correlation Between Algoma Steel and Universal Stainless

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

Diversification Opportunities for Algoma Steel and Universal Stainless

0.28

Correlation Coefficient

Algoma Steel  Universal Stainless

Modest diversification

The 3 months correlation between Algoma and Universal is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Algoma Steel Group and Universal Stainless Alloy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Stainless Alloy 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 Universal Stainless. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Stainless Alloy has no effect on the direction of Algoma Steel i.e., Algoma Steel and Universal Stainless go up and down completely randomly.

Pair Corralation between Algoma Steel and Universal Stainless

Given the investment horizon of 90 days Algoma Steel is expected to generate 3.71 times less return on investment than Universal Stainless. But when comparing it to its historical volatility, Algoma Steel Group is 1.48 times less risky than Universal Stainless. It trades about 0.06 of its potential returns per unit of risk. Universal Stainless Alloy is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,170  in Universal Stainless Alloy on October 5, 2024 and sell it today you would earn a total of  3,215  from holding Universal Stainless Alloy or generate 274.79% return on investment over 90 days.

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

Algoma Steel Group  vs.  Universal Stainless Alloy

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 latest weak performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Universal Stainless Alloy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Universal Stainless Alloy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Universal Stainless reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Algoma Steel and Universal Stainless

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

The idea behind Algoma Steel Group and Universal Stainless Alloy 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.