Correlation Between Pool and Olympic Steel

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

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

Diversification Opportunities for Pool and Olympic Steel

0.43

Correlation Coefficient

Pool  Olympic Steel

Very weak diversification

The 3 months correlation between Pool and Olympic is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Pool Corp. and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel and Pool 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 Pool Corporation 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 Pool i.e., Pool and Olympic Steel go up and down completely randomly.

Pair Corralation between Pool and Olympic Steel

Given the investment horizon of 90 days Pool Corporation is expected to generate 0.67 times more return on investment than Olympic Steel. However, Pool Corporation is 1.48 times less risky than Olympic Steel. It trades about 0.07 of its potential returns per unit of risk. Olympic Steel is currently generating about 0.04 per unit of risk. If you would invest  35,044  in Pool Corporation on August 30, 2024 and sell it today you would earn a total of  2,639  from holding Pool Corporation or generate 7.53% return on investment over 90 days.

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

Pool Corp.  vs.  Olympic Steel

Pool

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pool Corporation are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Pool may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Olympic Steel

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Olympic Steel are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Olympic Steel may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Pool and Olympic Steel

The main advantage of trading using opposite Pool and Olympic Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pool 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 Pool Corporation 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.