Correlation Between Salesforce and Olympic Steel

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

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

Diversification Opportunities for Salesforce and Olympic Steel

0.3

Correlation Coefficient

Salesforce  Olympic Steel

Weak diversification

The 3 months correlation between Salesforce and Olympic is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Salesforce and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel and Salesforce 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 Salesforce are associated (or correlated) with Olympic Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympic Steel has no effect on the direction of Salesforce i.e., Salesforce and Olympic Steel go up and down completely randomly.

Pair Corralation between Salesforce and Olympic Steel

Assuming the 90 days trading horizon Salesforce is expected to generate 0.77 times more return on investment than Olympic Steel. However, Salesforce is 1.3 times less risky than Olympic Steel. It trades about 0.14 of its potential returns per unit of risk. Olympic Steel is currently generating about -0.01 per unit of risk. If you would invest  26,459  in Salesforce on October 24, 2024 and sell it today you would earn a total of  4,921  from holding Salesforce or generate 18.6% return on investment over 90 days.

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

Salesforce  vs.  Olympic Steel

Salesforce

Risk-Adjusted Performance

10 of 100

OK

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

Olympic Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Olympic Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Olympic Steel is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Salesforce and Olympic Steel

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

The idea behind Salesforce and Olympic Steel 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.