Correlation Between Cleveland Cliffs and Reliance Steel

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

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

Diversification Opportunities for Cleveland Cliffs and Reliance Steel

0.48

Correlation Coefficient

Cleveland Cliffs  Reliance Steel

Very weak diversification

The 3 months correlation between Cleveland and Reliance is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Cleveland Cliffs 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 Cleveland Cliffs 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 Cleveland Cliffs 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 Cleveland Cliffs i.e., Cleveland Cliffs and Reliance Steel go up and down completely randomly.

Pair Corralation between Cleveland Cliffs and Reliance Steel

Considering the 90-day investment horizon Cleveland Cliffs is expected to under-perform the Reliance Steel. In addition to that, Cleveland Cliffs is 3.21 times more volatile than Reliance Steel Aluminum. It trades about -0.01 of its total potential returns per unit of risk. Reliance Steel Aluminum is currently generating about 0.13 per unit of volatility. If you would invest  26,509  in Reliance Steel Aluminum on December 29, 2024 and sell it today you would earn a total of  2,873  from holding Reliance Steel Aluminum or generate 10.84% return on investment over 90 days.

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

Cleveland Cliffs  vs.  Reliance Steel Aluminum

Cleveland Cliffs

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cleveland Cliffs has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, Cleveland Cliffs is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Reliance Steel Aluminum

Risk-Adjusted Performance

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 may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cleveland Cliffs and Reliance Steel

The main advantage of trading using opposite Cleveland Cliffs and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cleveland Cliffs 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 Cleveland Cliffs 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.