Correlation Between Tower Semiconductor and ArcelorMittal

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

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

Diversification Opportunities for Tower Semiconductor and ArcelorMittal

0.73

Correlation Coefficient

Tower Semiconductor  ArcelorMittal

Poor diversification

The 3 months correlation between Tower and ArcelorMittal is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Tower Semiconductor and ArcelorMittal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcelorMittal and Tower Semiconductor 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 Tower Semiconductor are associated (or correlated) with ArcelorMittal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ArcelorMittal has no effect on the direction of Tower Semiconductor i.e., Tower Semiconductor and ArcelorMittal go up and down completely randomly.

Pair Corralation between Tower Semiconductor and ArcelorMittal

Assuming the 90 days horizon Tower Semiconductor is expected to generate 1.03 times less return on investment than ArcelorMittal. In addition to that, Tower Semiconductor is 1.46 times more volatile than ArcelorMittal. It trades about 0.11 of its total potential returns per unit of risk. ArcelorMittal is currently generating about 0.17 per unit of volatility. If you would invest  1,970  in ArcelorMittal on September 13, 2024 and sell it today you would earn a total of  470.00  from holding ArcelorMittal or generate 23.86% return on investment over 90 days.

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

Tower Semiconductor  vs.  ArcelorMittal

Tower Semiconductor

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tower Semiconductor are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tower Semiconductor reported solid returns over the last few months and may actually be approaching a breakup point.

ArcelorMittal

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Tower Semiconductor and ArcelorMittal

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

The idea behind Tower Semiconductor and ArcelorMittal 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.