Correlation Between Nike and Reliance Steel

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

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

Diversification Opportunities for Nike and Reliance Steel

-0.24

Correlation Coefficient

Nike  Reliance Steel

Very good diversification

The 3 months correlation between Nike and Reliance is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Nike Inc 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 Nike 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 Nike Inc 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 Nike i.e., Nike and Reliance Steel go up and down completely randomly.

Pair Corralation between Nike and Reliance Steel

Assuming the 90 days trading horizon Nike Inc is expected to under-perform the Reliance Steel. But the stock apears to be less risky and, when comparing its historical volatility, Nike Inc is 1.01 times less risky than Reliance Steel. The stock trades about -0.03 of its potential returns per unit of risk. The Reliance Steel Aluminum is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  18,688  in Reliance Steel Aluminum on September 18, 2024 and sell it today you would earn a total of  10,072  from holding Reliance Steel Aluminum or generate 53.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Nike Inc  vs.  Reliance Steel Aluminum

Nike Inc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nike Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Nike is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Reliance Steel Aluminum

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Reliance Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nike and Reliance Steel

The main advantage of trading using opposite Nike and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nike 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 Nike Inc 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 CEOs Directory module to screen CEOs from public companies around the world.