Correlation Between Friedman Industries and Algoma Steel

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

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

Diversification Opportunities for Friedman Industries and Algoma Steel

-0.42

Correlation Coefficient

Friedman Industries  Algoma Steel

Very good diversification

The 3 months correlation between Friedman and Algoma is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Friedman Industries 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 Friedman Industries 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 Friedman Industries 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 Friedman Industries i.e., Friedman Industries and Algoma Steel go up and down completely randomly.

Pair Corralation between Friedman Industries and Algoma Steel

Considering the 90-day investment horizon Friedman Industries is expected to generate 0.8 times more return on investment than Algoma Steel. However, Friedman Industries is 1.25 times less risky than Algoma Steel. It trades about 0.05 of its potential returns per unit of risk. Algoma Steel Group is currently generating about -0.13 per unit of risk. If you would invest  1,523  in Friedman Industries on September 30, 2024 and sell it today you would earn a total of  34.00  from holding Friedman Industries or generate 2.23% return on investment over 90 days.

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

Friedman Industries  vs.  Algoma Steel Group

Friedman Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Friedman Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Friedman Industries is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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. In spite of fairly stable essential indicators, Algoma Steel is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Friedman Industries and Algoma Steel

The main advantage of trading using opposite Friedman Industries and Algoma Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Friedman Industries 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 Friedman Industries 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.