Correlation Between Ternium SA and ArcelorMittal

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

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

Diversification Opportunities for Ternium SA and ArcelorMittal

-0.76

Correlation Coefficient

Ternium SA  ArcelorMittal

Pay attention - limited upside

The 3 months correlation between Ternium and ArcelorMittal is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ternium SA ADR and ArcelorMittal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcelorMittal SA and Ternium SA 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 Ternium SA ADR 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 SA has no effect on the direction of Ternium SA i.e., Ternium SA and ArcelorMittal go up and down completely randomly.

Pair Corralation between Ternium SA and ArcelorMittal

Allowing for the 90-day total investment horizon Ternium SA ADR is expected to under-perform the ArcelorMittal. In addition to that, Ternium SA is 1.37 times more volatile than ArcelorMittal SA. It trades about -0.39 of its total potential returns per unit of risk. ArcelorMittal SA is currently generating about 0.06 per unit of volatility. If you would invest  2,506  in ArcelorMittal SA on September 29, 2024 and sell it today you would earn a total of  33.00  from holding ArcelorMittal SA or generate 1.32% return on investment over 90 days.

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

Ternium SA ADR  vs.  ArcelorMittal SA

Ternium SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ternium SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

ArcelorMittal SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, ArcelorMittal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ternium SA and ArcelorMittal

The main advantage of trading using opposite Ternium SA and ArcelorMittal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ternium SA 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 Ternium SA ADR and ArcelorMittal SA 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.