Correlation Between Ternium SA and Cleveland Cliffs

Can any of the company-specific risk be diversified away by investing in both Ternium SA and Cleveland Cliffs 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 Cleveland Cliffs 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 Cleveland Cliffs, you can compare the effects of market volatilities on Ternium SA and Cleveland Cliffs 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 Cleveland Cliffs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ternium SA and Cleveland Cliffs.

Diversification Opportunities for Ternium SA and Cleveland Cliffs

0.86

Correlation Coefficient

Ternium SA  Cleveland Cliffs

Very poor diversification

The 3 months correlation between Ternium and Cleveland is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Ternium SA ADR and Cleveland Cliffs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cleveland Cliffs 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 Cleveland Cliffs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cleveland Cliffs has no effect on the direction of Ternium SA i.e., Ternium SA and Cleveland Cliffs go up and down completely randomly.

Pair Corralation between Ternium SA and Cleveland Cliffs

Allowing for the 90-day total investment horizon Ternium SA ADR is expected to generate 0.6 times more return on investment than Cleveland Cliffs. However, Ternium SA ADR is 1.66 times less risky than Cleveland Cliffs. It trades about -0.01 of its potential returns per unit of risk. Cleveland Cliffs is currently generating about -0.03 per unit of risk. If you would invest  3,647  in Ternium SA ADR on November 19, 2024 and sell it today you would lose (615.00) from holding Ternium SA ADR or give up 16.86% of portfolio value over 90 days.

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

Ternium SA ADR  vs.  Cleveland Cliffs

Ternium SA ADR

Risk-Adjusted Performance

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Cleveland Cliffs

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cleveland Cliffs are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Cleveland Cliffs is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ternium SA and Cleveland Cliffs

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

The idea behind Ternium SA ADR and Cleveland Cliffs 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 Global Correlations module to find global opportunities by holding instruments from different markets.