Correlation Between True North and Algoma Steel

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

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

Diversification Opportunities for True North and Algoma Steel

-0.42

Correlation Coefficient

True North  Algoma Steel

Very good diversification

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

Pair Corralation between True North and Algoma Steel

Assuming the 90 days horizon True North Gems is expected to under-perform the Algoma Steel. In addition to that, True North is 5.5 times more volatile than Algoma Steel Group. It trades about 0.0 of its total potential returns per unit of risk. Algoma Steel Group is currently generating about 0.04 per unit of volatility. If you would invest  1,387  in Algoma Steel Group on September 15, 2024 and sell it today you would earn a total of  50.00  from holding Algoma Steel Group or generate 3.6% return on investment over 90 days.

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

True North Gems  vs.  Algoma Steel Group

True North Gems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days True North Gems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, True North is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

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. In spite of very healthy basic indicators, Algoma Steel is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with True North and Algoma Steel

The main advantage of trading using opposite True North and Algoma Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if True North 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 True North Gems 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.