Correlation Between United States and Reliance Steel

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

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

Diversification Opportunities for United States and Reliance Steel

-0.65

Correlation Coefficient

United States  Reliance Steel

Excellent diversification

The 3 months correlation between United and Reliance is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Reliance Steel Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Steel Aluminum and United States 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 United States Steel are associated (or correlated) with Reliance Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Steel Aluminum has no effect on the direction of United States i.e., United States and Reliance Steel go up and down completely randomly.

Pair Corralation between United States and Reliance Steel

Taking into account the 90-day investment horizon United States is expected to generate 1.13 times less return on investment than Reliance Steel. In addition to that, United States is 1.84 times more volatile than Reliance Steel Aluminum. It trades about 0.07 of its total potential returns per unit of risk. Reliance Steel Aluminum is currently generating about 0.15 per unit of volatility. If you would invest  24,283  in Reliance Steel Aluminum on January 19, 2024 and sell it today you would earn a total of  7,733  from holding Reliance Steel Aluminum or generate 31.85% return on investment over 90 days.

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

United States Steel  vs.  Reliance Steel Aluminum

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Reliance Steel Aluminum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Reliance Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and Reliance Steel

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

The idea behind United States Steel and Reliance Steel Aluminum 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.

Check out your portfolio center.

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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.