Correlation Between ForFarmers and ArcelorMittal

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

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

Diversification Opportunities for ForFarmers and ArcelorMittal

0.12

Correlation Coefficient

ForFarmers  ArcelorMittal

Average diversification

The 3 months correlation between ForFarmers and ArcelorMittal is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding ForFarmers NV and ArcelorMittal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcelorMittal SA and ForFarmers 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 ForFarmers NV 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 ForFarmers i.e., ForFarmers and ArcelorMittal go up and down completely randomly.

Pair Corralation between ForFarmers and ArcelorMittal

Assuming the 90 days trading horizon ForFarmers NV is expected to generate 1.75 times more return on investment than ArcelorMittal. However, ForFarmers is 1.75 times more volatile than ArcelorMittal SA. It trades about 0.25 of its potential returns per unit of risk. ArcelorMittal SA is currently generating about 0.11 per unit of risk. If you would invest  240.00  in ForFarmers NV on February 23, 2024 and sell it today you would earn a total of  29.00  from holding ForFarmers NV or generate 12.08% return on investment over 90 days.

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

ForFarmers NV  vs.  ArcelorMittal SA

ForFarmers NV

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ForFarmers NV are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain primary indicators, ForFarmers sustained solid returns over the last few months and may actually be approaching a breakup point.

ArcelorMittal SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ArcelorMittal SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ArcelorMittal is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with ForFarmers and ArcelorMittal

The main advantage of trading using opposite ForFarmers and ArcelorMittal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ForFarmers 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 ForFarmers NV 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.