Correlation Between Reliance Steel and Cleveland Cliffs

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

By analyzing existing cross correlation between Reliance Steel Aluminum and Cleveland Cliffs, you can compare the effects of market volatilities on Reliance Steel 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 Reliance Steel with a short position of Cleveland Cliffs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Steel and Cleveland Cliffs.

Diversification Opportunities for Reliance Steel and Cleveland Cliffs

0.78

Correlation Coefficient

Reliance Steel  Cleveland Cliffs

Poor diversification

The 3 months correlation between Reliance and Cleveland is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Cleveland Cliffs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cleveland Cliffs and Reliance Steel 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 Reliance Steel Aluminum 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 Reliance Steel i.e., Reliance Steel and Cleveland Cliffs go up and down completely randomly.

Pair Corralation between Reliance Steel and Cleveland Cliffs

Allowing for the 90-day total investment horizon Reliance Steel Aluminum is expected to generate 0.9 times more return on investment than Cleveland Cliffs. However, Reliance Steel Aluminum is 1.11 times less risky than Cleveland Cliffs. It trades about 0.02 of its potential returns per unit of risk. Cleveland Cliffs is currently generating about -0.08 per unit of risk. If you would invest  28,765  in Reliance Steel Aluminum on February 3, 2024 and sell it today you would earn a total of  307.00  from holding Reliance Steel Aluminum or generate 1.07% return on investment over 90 days.

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

Reliance Steel Aluminum  vs.  Cleveland Cliffs

Reliance Steel Aluminum

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Reliance Steel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Cleveland Cliffs

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cleveland Cliffs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's essential indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Reliance Steel and Cleveland Cliffs

The main advantage of trading using opposite Reliance Steel and Cleveland Cliffs positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Steel 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 Reliance Steel Aluminum 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.