Correlation Between Daimler Truck and Reliance Steel

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

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

Diversification Opportunities for Daimler Truck and Reliance Steel

0.05

Correlation Coefficient

Daimler Truck  Reliance Steel

Significant diversification

The 3 months correlation between Daimler and Reliance is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Daimler Truck Holding 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 Daimler Truck 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 Daimler Truck Holding 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 Daimler Truck i.e., Daimler Truck and Reliance Steel go up and down completely randomly.

Pair Corralation between Daimler Truck and Reliance Steel

Assuming the 90 days trading horizon Daimler Truck Holding is expected to generate 1.39 times more return on investment than Reliance Steel. However, Daimler Truck is 1.39 times more volatile than Reliance Steel Aluminum. It trades about 0.14 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about -0.08 per unit of risk. If you would invest  3,603  in Daimler Truck Holding on December 2, 2024 and sell it today you would earn a total of  608.00  from holding Daimler Truck Holding or generate 16.87% return on investment over 90 days.

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

Daimler Truck Holding  vs.  Reliance Steel Aluminum

Daimler Truck Holding

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daimler Truck Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Daimler Truck unveiled solid returns over the last few months and may actually be approaching a breakup point.

Reliance Steel Aluminum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reliance Steel Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Daimler Truck and Reliance Steel

The main advantage of trading using opposite Daimler Truck and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daimler Truck 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 Daimler Truck Holding 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.