Correlation Between STEEL DYNAMICS and Reliance Steel
Can any of the company-specific risk be diversified away by investing in both STEEL DYNAMICS 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 STEEL DYNAMICS and Reliance Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between STEEL DYNAMICS and Reliance Steel Aluminum, you can compare the effects of market volatilities on STEEL DYNAMICS 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 STEEL DYNAMICS with a short position of Reliance Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of STEEL DYNAMICS and Reliance Steel.
Diversification Opportunities for STEEL DYNAMICS and Reliance Steel
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between STEEL and Reliance is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding STEEL DYNAMICS 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 STEEL DYNAMICS 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 STEEL DYNAMICS 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 STEEL DYNAMICS i.e., STEEL DYNAMICS and Reliance Steel go up and down completely randomly.
Pair Corralation between STEEL DYNAMICS and Reliance Steel
Assuming the 90 days trading horizon STEEL DYNAMICS is expected to generate 1.4 times more return on investment than Reliance Steel. However, STEEL DYNAMICS is 1.4 times more volatile than Reliance Steel Aluminum. It trades about -0.29 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about -0.49 per unit of risk. If you would invest 12,734 in STEEL DYNAMICS on October 11, 2024 and sell it today you would lose (1,202) from holding STEEL DYNAMICS or give up 9.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
STEEL DYNAMICS vs. Reliance Steel Aluminum
Performance |
| Timeline |
| STEEL DYNAMICS |
| Reliance Steel Aluminum |
STEEL DYNAMICS and Reliance Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with STEEL DYNAMICS and Reliance Steel
The main advantage of trading using opposite STEEL DYNAMICS and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STEEL DYNAMICS 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.| STEEL DYNAMICS vs. China Resources Beer | STEEL DYNAMICS vs. Titan Machinery | STEEL DYNAMICS vs. FARM 51 GROUP | STEEL DYNAMICS vs. Federal Agricultural Mortgage |
| Reliance Steel vs. Air Transport Services | Reliance Steel vs. PennantPark Investment | Reliance Steel vs. Guangdong Investment Limited | Reliance Steel vs. ANTA SPORTS PRODUCT |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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