Correlation Between Reliance Steel and Weyerhaeuser

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

Diversification Opportunities for Reliance Steel and Weyerhaeuser

0.6

Correlation Coefficient

Reliance Steel  Weyerhaeuser

Poor diversification

The 3 months correlation between Reliance and Weyerhaeuser is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Weyerhaeuser in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Weyerhaeuser 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 Weyerhaeuser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Weyerhaeuser has no effect on the direction of Reliance Steel i.e., Reliance Steel and Weyerhaeuser go up and down completely randomly.

Pair Corralation between Reliance Steel and Weyerhaeuser

Allowing for the 90-day total investment horizon Reliance Steel Aluminum is expected to generate 1.1 times more return on investment than Weyerhaeuser. However, Reliance Steel is 1.1 times more volatile than Weyerhaeuser. It trades about 0.06 of its potential returns per unit of risk. Weyerhaeuser is currently generating about -0.01 per unit of risk. If you would invest  18,155  in Reliance Steel Aluminum on January 31, 2024 and sell it today you would earn a total of  11,238  from holding Reliance Steel Aluminum or generate 61.9% 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.  Weyerhaeuser

Reliance Steel Aluminum

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 2 (%) 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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Weyerhaeuser

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Weyerhaeuser has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Weyerhaeuser is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Reliance Steel and Weyerhaeuser

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

The idea behind Reliance Steel Aluminum and Weyerhaeuser 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.