Correlation Between ARCELORMITTAL and 00108WAF7

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Can any of the company-specific risk be diversified away by investing in both ARCELORMITTAL and 00108WAF7 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 ARCELORMITTAL and 00108WAF7 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ARCELORMITTAL LUXEMBOURG 675 and AEP TEX INC, you can compare the effects of market volatilities on ARCELORMITTAL and 00108WAF7 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 ARCELORMITTAL with a short position of 00108WAF7. Check out your portfolio center. Please also check ongoing floating volatility patterns of ARCELORMITTAL and 00108WAF7.

Diversification Opportunities for ARCELORMITTAL and 00108WAF7

0.71
  Correlation Coefficient

Poor diversification

The 3 months correlation between ARCELORMITTAL and 00108WAF7 is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding ARCELORMITTAL LUXEMBOURG 6.75% and AEP TEX INC 3.8% 01Oct2047 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AEP TEX INC and ARCELORMITTAL 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 ARCELORMITTAL LUXEMBOURG 675 are associated (or correlated) with 00108WAF7. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AEP TEX INC has no effect on the direction of ARCELORMITTAL i.e., ARCELORMITTAL and 00108WAF7 go up and down completely randomly.

Pair Corralation between ARCELORMITTAL and 00108WAF7

Assuming the 90 days trading horizon ARCELORMITTAL LUXEMBOURG 675 is expected to under-perform the 00108WAF7. In addition to that, ARCELORMITTAL is 1.29 times more volatile than AEP TEX INC. It trades about -0.02 of its total potential returns per unit of risk. AEP TEX INC is currently generating about 0.07 per unit of volatility. If you would invest  7,377  in AEP TEX INC on November 30, 2023 and sell it today you would earn a total of  103.00  from holding AEP TEX INC or generate 1.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.24%
ValuesDaily Returns

ARCELORMITTAL LUXEMBOURG 6.75%  vs.  AEP TEX INC 3.8% 01Oct2047

 Performance 
       Timeline  
ARCELORMITTAL LUXEMB 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in ARCELORMITTAL LUXEMBOURG 675 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ARCELORMITTAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
AEP TEX INC 

Risk-Adjusted Performance

13 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in AEP TEX INC are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, 00108WAF7 sustained solid returns over the last few months and may actually be approaching a breakup point.

ARCELORMITTAL and 00108WAF7 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with ARCELORMITTAL and 00108WAF7

The main advantage of trading using opposite ARCELORMITTAL and 00108WAF7 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARCELORMITTAL position performs unexpectedly, 00108WAF7 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 00108WAF7 will offset losses from the drop in 00108WAF7's long position.
The idea behind ARCELORMITTAL LUXEMBOURG 675 and AEP TEX INC 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.

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