Correlation Between Laureate Education and Reliance Steel

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

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

Diversification Opportunities for Laureate Education and Reliance Steel

0.73

Correlation Coefficient

Laureate Education  Reliance Steel

Poor diversification

The 3 months correlation between Laureate and Reliance is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Laureate Education 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 Laureate Education 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 Laureate Education 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 Laureate Education i.e., Laureate Education and Reliance Steel go up and down completely randomly.

Pair Corralation between Laureate Education and Reliance Steel

Assuming the 90 days trading horizon Laureate Education is expected to generate 1.11 times more return on investment than Reliance Steel. However, Laureate Education is 1.11 times more volatile than Reliance Steel Aluminum. It trades about 0.15 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about 0.02 per unit of risk. If you would invest  1,420  in Laureate Education on October 5, 2024 and sell it today you would earn a total of  310.00  from holding Laureate Education or generate 21.83% return on investment over 90 days.

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

Laureate Education  vs.  Reliance Steel Aluminum

Laureate Education

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Laureate Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Laureate Education reported solid returns over the last few months and may actually be approaching a breakup point.

Reliance Steel Aluminum

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Laureate Education and Reliance Steel

The main advantage of trading using opposite Laureate Education and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Laureate Education 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 Laureate Education 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.