Correlation Between CECO Environmental and Algoma Steel

Can any of the company-specific risk be diversified away by investing in both CECO Environmental and Algoma Steel 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 CECO Environmental and Algoma Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between CECO Environmental Corp and Algoma Steel Group, you can compare the effects of market volatilities on CECO Environmental and Algoma Steel 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 CECO Environmental with a short position of Algoma Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of CECO Environmental and Algoma Steel.

Diversification Opportunities for CECO Environmental and Algoma Steel

0.81

Correlation Coefficient

CECO Environmental  Algoma Steel

Very poor diversification

The 3 months correlation between CECO and Algoma is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding CECO Environmental Corp and Algoma Steel Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algoma Steel Group and CECO Environmental 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 CECO Environmental Corp are associated (or correlated) with Algoma Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algoma Steel Group has no effect on the direction of CECO Environmental i.e., CECO Environmental and Algoma Steel go up and down completely randomly.

Pair Corralation between CECO Environmental and Algoma Steel

Given the investment horizon of 90 days CECO Environmental Corp is expected to generate 0.8 times more return on investment than Algoma Steel. However, CECO Environmental Corp is 1.25 times less risky than Algoma Steel. It trades about -0.11 of its potential returns per unit of risk. Algoma Steel Group is currently generating about -0.23 per unit of risk. If you would invest  2,954  in CECO Environmental Corp on December 26, 2024 and sell it today you would lose (538.00) from holding CECO Environmental Corp or give up 18.21% of portfolio value over 90 days.

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

CECO Environmental Corp  vs.  Algoma Steel Group

CECO Environmental Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days CECO Environmental Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Algoma Steel Group

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with CECO Environmental and Algoma Steel

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

The idea behind CECO Environmental Corp and Algoma Steel Group 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.