Correlation Between Reliance Steel and Commercial Metals

Can any of the company-specific risk be diversified away by investing in both Reliance Steel and Commercial Metals 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 Commercial Metals 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 Commercial Metals, you can compare the effects of market volatilities on Reliance Steel and Commercial Metals 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 Commercial Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Steel and Commercial Metals.

Diversification Opportunities for Reliance Steel and Commercial Metals

0.7

Correlation Coefficient

Reliance Steel  Commercial Metals

Poor diversification

The 3 months correlation between Reliance and Commercial is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Commercial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial Metals 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 Commercial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial Metals has no effect on the direction of Reliance Steel i.e., Reliance Steel and Commercial Metals go up and down completely randomly.

Pair Corralation between Reliance Steel and Commercial Metals

Allowing for the 90-day total investment horizon Reliance Steel Aluminum is expected to under-perform the Commercial Metals. In addition to that, Reliance Steel is 1.12 times more volatile than Commercial Metals. It trades about -0.39 of its total potential returns per unit of risk. Commercial Metals is currently generating about -0.07 per unit of volatility. If you would invest  5,799  in Commercial Metals on February 3, 2024 and sell it today you would lose (153.00) from holding Commercial Metals or give up 2.64% of portfolio value over 90 days.

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

Reliance Steel Aluminum  vs.  Commercial Metals

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Commercial Metals

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial Metals are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, Commercial Metals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Steel and Commercial Metals

The main advantage of trading using opposite Reliance Steel and Commercial Metals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Steel position performs unexpectedly, Commercial Metals 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 Commercial Metals will offset losses from the drop in Commercial Metals' long position.

The idea behind Reliance Steel Aluminum and Commercial Metals 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 Transaction History module to view history of all your transactions and understand their impact on performance.