Correlation Between Linamar and Russel Metals

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

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

Diversification Opportunities for Linamar and Russel Metals

0.15

Correlation Coefficient

Linamar  Russel Metals

Average diversification

The 3 months correlation between Linamar and Russel is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Linamar and Russel Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russel Metals and Linamar 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 Linamar are associated (or correlated) with Russel Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russel Metals has no effect on the direction of Linamar i.e., Linamar and Russel Metals go up and down completely randomly.

Pair Corralation between Linamar and Russel Metals

Assuming the 90 days trading horizon Linamar is expected to generate 4.46 times less return on investment than Russel Metals. In addition to that, Linamar is 1.03 times more volatile than Russel Metals. It trades about 0.05 of its total potential returns per unit of risk. Russel Metals is currently generating about 0.22 per unit of volatility. If you would invest  3,680  in Russel Metals on September 12, 2024 and sell it today you would earn a total of  838.00  from holding Russel Metals or generate 22.77% return on investment over 90 days.

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

Linamar  vs.  Russel Metals

Linamar

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Linamar are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Linamar is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Russel Metals

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Russel Metals are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Russel Metals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Linamar and Russel Metals

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

The idea behind Linamar and Russel Metals 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.