Correlation Between HE Equipment and Olympic Steel

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

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

Diversification Opportunities for HE Equipment and Olympic Steel

0.62

Correlation Coefficient

HE Equipment  Olympic Steel

Poor diversification

The 3 months correlation between HEES and Olympic is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding HE Equipment Services and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel and HE Equipment 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 HE Equipment Services 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 HE Equipment i.e., HE Equipment and Olympic Steel go up and down completely randomly.

Pair Corralation between HE Equipment and Olympic Steel

Given the investment horizon of 90 days HE Equipment Services is expected to generate 0.97 times more return on investment than Olympic Steel. However, HE Equipment Services is 1.03 times less risky than Olympic Steel. It trades about 0.02 of its potential returns per unit of risk. Olympic Steel is currently generating about 0.02 per unit of risk. If you would invest  4,402  in HE Equipment Services on September 19, 2024 and sell it today you would earn a total of  549.00  from holding HE Equipment Services or generate 12.47% return on investment over 90 days.

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

HE Equipment Services  vs.  Olympic Steel

HE Equipment Services

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in HE Equipment Services are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, HE Equipment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with HE Equipment and Olympic Steel

The main advantage of trading using opposite HE Equipment and Olympic Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HE Equipment 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 HE Equipment Services 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.

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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.