Correlation Between Steel Dynamics and Algoma Steel

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

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

Diversification Opportunities for Steel Dynamics and Algoma Steel

0.82

Correlation Coefficient

Steel Dynamics  Algoma Steel

Very poor diversification

The 3 months correlation between Steel and Algoma is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics i.e., Steel Dynamics and Algoma Steel go up and down completely randomly.

Pair Corralation between Steel Dynamics and Algoma Steel

Given the investment horizon of 90 days Steel Dynamics is expected to generate 0.48 times more return on investment than Algoma Steel. However, Steel Dynamics is 2.1 times less risky than Algoma Steel. It trades about -0.68 of its potential returns per unit of risk. Algoma Steel Group is currently generating about -0.34 per unit of risk. If you would invest  14,383  in Steel Dynamics on September 28, 2024 and sell it today you would lose (2,820) from holding Steel Dynamics or give up 19.61% of portfolio value over 90 days.

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

Steel Dynamics  vs.  Algoma Steel Group

Steel Dynamics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steel Dynamics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's essential indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm 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 latest uncertain performance, the Stock's essential indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Steel Dynamics and Algoma Steel

The main advantage of trading using opposite Steel Dynamics and Algoma Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Dynamics 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 Steel Dynamics 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.