Correlation Between Metropolitan Steel and Reliance Weaving

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

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

Diversification Opportunities for Metropolitan Steel and Reliance Weaving

-0.32

Correlation Coefficient

Metropolitan Steel  Reliance Weaving

Very good diversification

The 3 months correlation between Metropolitan and Reliance is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Metropolitan Steel Corp and Reliance Weaving Mills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Weaving Mills and Metropolitan Steel 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 Metropolitan Steel Corp are associated (or correlated) with Reliance Weaving. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Weaving Mills has no effect on the direction of Metropolitan Steel i.e., Metropolitan Steel and Reliance Weaving go up and down completely randomly.

Pair Corralation between Metropolitan Steel and Reliance Weaving

Assuming the 90 days trading horizon Metropolitan Steel Corp is expected to under-perform the Reliance Weaving. In addition to that, Metropolitan Steel is 1.51 times more volatile than Reliance Weaving Mills. It trades about -0.04 of its total potential returns per unit of risk. Reliance Weaving Mills is currently generating about 0.0 per unit of volatility. If you would invest  15,000  in Reliance Weaving Mills on December 26, 2024 and sell it today you would lose (100.00) from holding Reliance Weaving Mills or give up 0.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	68.25%
Values	Daily Returns

Metropolitan Steel Corp  vs.  Reliance Weaving Mills

Metropolitan Steel Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Metropolitan Steel Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Metropolitan Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Reliance Weaving Mills

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reliance Weaving Mills has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Reliance Weaving is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Metropolitan Steel and Reliance Weaving

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

The idea behind Metropolitan Steel Corp and Reliance Weaving Mills 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.