Correlation Between Commercial Metals and Rayonier Advanced

Can any of the company-specific risk be diversified away by investing in both Commercial Metals and Rayonier Advanced 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 Commercial Metals and Rayonier Advanced into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Commercial Metals and Rayonier Advanced Materials, you can compare the effects of market volatilities on Commercial Metals and Rayonier Advanced 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 Commercial Metals with a short position of Rayonier Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commercial Metals and Rayonier Advanced.

Diversification Opportunities for Commercial Metals and Rayonier Advanced

0.61

Correlation Coefficient

Commercial Metals  Rayonier Advanced

Poor diversification

The 3 months correlation between Commercial and Rayonier is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Commercial Metals and Rayonier Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rayonier Advanced and Commercial Metals 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 Commercial Metals are associated (or correlated) with Rayonier Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rayonier Advanced has no effect on the direction of Commercial Metals i.e., Commercial Metals and Rayonier Advanced go up and down completely randomly.

Pair Corralation between Commercial Metals and Rayonier Advanced

Considering the 90-day investment horizon Commercial Metals is expected to generate 1.35 times more return on investment than Rayonier Advanced. However, Commercial Metals is 1.35 times more volatile than Rayonier Advanced Materials. It trades about -0.35 of its potential returns per unit of risk. Rayonier Advanced Materials is currently generating about -0.58 per unit of risk. If you would invest  5,972  in Commercial Metals on September 21, 2024 and sell it today you would lose (948.50) from holding Commercial Metals or give up 15.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Commercial Metals  vs.  Rayonier Advanced Materials

Commercial Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commercial Metals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, Commercial Metals is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Rayonier Advanced

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rayonier Advanced Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Rayonier Advanced is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Commercial Metals and Rayonier Advanced

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

The idea behind Commercial Metals and Rayonier Advanced Materials 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.