Correlation Between Reliance Steel and Merck
Can any of the company-specific risk be diversified away by investing in both Reliance Steel and Merck 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 Merck 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 Merck Company, you can compare the effects of market volatilities on Reliance Steel and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Steel and Merck.
Diversification Opportunities for Reliance Steel and Merck
-0.82 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Reliance and Merck is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Reliance Steel i.e., Reliance Steel and Merck go up and down completely randomly.
Pair Corralation between Reliance Steel and Merck
Assuming the 90 days horizon Reliance Steel Aluminum is expected to generate 1.15 times more return on investment than Merck. However, Reliance Steel is 1.15 times more volatile than Merck Company. It trades about 0.06 of its potential returns per unit of risk. Merck Company is currently generating about 0.01 per unit of risk. If you would invest 24,411 in Reliance Steel Aluminum on September 2, 2024 and sell it today you would earn a total of 6,039 from holding Reliance Steel Aluminum or generate 24.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Reliance Steel Aluminum vs. Merck Company
Performance |
| Timeline |
| Reliance Steel Aluminum |
| Merck Company |
Reliance Steel and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Reliance Steel and Merck
The main advantage of trading using opposite Reliance Steel and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Steel position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.The idea behind Reliance Steel Aluminum and Merck Company 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.| Merck vs. ATRYS HEALTH SA | Merck vs. Global Ship Lease | Merck vs. Japan Tobacco | Merck vs. IMPERIAL TOBACCO |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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