Correlation Between European Residential and Algoma Steel
Can any of the company-specific risk be diversified away by investing in both European Residential 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 European Residential and Algoma Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between European Residential Real and Algoma Steel Group, you can compare the effects of market volatilities on European Residential 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 European Residential with a short position of Algoma Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of European Residential and Algoma Steel.
Diversification Opportunities for European Residential and Algoma Steel
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between European and Algoma is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding European Residential Real 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 European Residential 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 European Residential Real 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 European Residential i.e., European Residential and Algoma Steel go up and down completely randomly.
Pair Corralation between European Residential and Algoma Steel
Assuming the 90 days trading horizon European Residential is expected to generate 2.06 times less return on investment than Algoma Steel. But when comparing it to its historical volatility, European Residential Real is 1.36 times less risky than Algoma Steel. It trades about 0.04 of its potential returns per unit of risk. Algoma Steel Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 565.00 in Algoma Steel Group on September 4, 2024 and sell it today you would earn a total of 491.00 from holding Algoma Steel Group or generate 86.9% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
European Residential Real vs. Algoma Steel Group
Performance |
| Timeline |
| European Residential Real |
| Algoma Steel Group |
European Residential and Algoma Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with European Residential and Algoma Steel
The main advantage of trading using opposite European Residential and Algoma Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Residential 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.| European Residential vs. BSR Real Estate | European Residential vs. Minto Apartment Real | European Residential vs. Nexus Real Estate | European Residential vs. Morguard North American |
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Check out your portfolio center.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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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