Correlation Between Reliance Steel and Ares Management
Can any of the company-specific risk be diversified away by investing in both Reliance Steel and Ares Management 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 Ares Management 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 Ares Management Corp, you can compare the effects of market volatilities on Reliance Steel and Ares Management 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 Ares Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Steel and Ares Management.
Diversification Opportunities for Reliance Steel and Ares Management
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Reliance and Ares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Ares Management Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ares Management Corp 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 Ares Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ares Management Corp has no effect on the direction of Reliance Steel i.e., Reliance Steel and Ares Management go up and down completely randomly.
Pair Corralation between Reliance Steel and Ares Management
Assuming the 90 days horizon Reliance Steel is expected to generate 1.35 times less return on investment than Ares Management. But when comparing it to its historical volatility, Reliance Steel Aluminum is 1.06 times less risky than Ares Management. It trades about 0.13 of its potential returns per unit of risk. Ares Management Corp is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest 13,075 in Ares Management Corp on September 2, 2024 and sell it today you would earn a total of 3,377 from holding Ares Management Corp or generate 25.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Reliance Steel Aluminum vs. Ares Management Corp
Performance |
| Timeline |
| Reliance Steel Aluminum |
| Ares Management Corp |
Reliance Steel and Ares Management Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Reliance Steel and Ares Management
The main advantage of trading using opposite Reliance Steel and Ares Management positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Steel position performs unexpectedly, Ares Management 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 Ares Management will offset losses from the drop in Ares Management's long position.The idea behind Reliance Steel Aluminum and Ares Management Corp 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.| Ares Management vs. Ameriprise Financial | Ares Management vs. Superior Plus Corp | Ares Management vs. NMI Holdings | Ares Management vs. Origin Agritech |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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