Correlation Between Ternium SA and Champion Iron
Can any of the company-specific risk be diversified away by investing in both Ternium SA and Champion Iron 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 Champion Iron 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 Champion Iron Limited, you can compare the effects of market volatilities on Ternium SA and Champion Iron 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 Champion Iron. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ternium SA and Champion Iron.
Diversification Opportunities for Ternium SA and Champion Iron
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Ternium and Champion is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ternium SA ADR and Champion Iron Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Champion Iron Limited 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 Champion Iron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Champion Iron Limited has no effect on the direction of Ternium SA i.e., Ternium SA and Champion Iron go up and down completely randomly.
Pair Corralation between Ternium SA and Champion Iron
Allowing for the 90-day total investment horizon Ternium SA ADR is expected to generate 0.55 times more return on investment than Champion Iron. However, Ternium SA ADR is 1.81 times less risky than Champion Iron. It trades about 0.03 of its potential returns per unit of risk. Champion Iron Limited is currently generating about 0.0 per unit of risk. If you would invest 2,629 in Ternium SA ADR on August 28, 2024 and sell it today you would earn a total of 626.00 from holding Ternium SA ADR or generate 23.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Ternium SA ADR vs. Champion Iron Limited
Performance |
| Timeline |
| Ternium SA ADR |
| Champion Iron Limited |
Ternium SA and Champion Iron Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ternium SA and Champion Iron
The main advantage of trading using opposite Ternium SA and Champion Iron positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ternium SA position performs unexpectedly, Champion Iron 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 Champion Iron will offset losses from the drop in Champion Iron's long position.The idea behind Ternium SA ADR and Champion Iron Limited 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.| Champion Iron vs. Olympic Steel | Champion Iron vs. Mesabi Trust | Champion Iron vs. Universal Stainless Alloy | Champion Iron vs. POSCO Holdings |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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