Correlation Between Reliance Insurance and Metropolitan Steel

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

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

Diversification Opportunities for Reliance Insurance and Metropolitan Steel

0.26

Correlation Coefficient

Reliance Insurance  Metropolitan Steel

Modest diversification

The 3 months correlation between Reliance and Metropolitan is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Insurance Co and Metropolitan Steel Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan Steel Corp and Reliance Insurance 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 Reliance Insurance Co are associated (or correlated) with Metropolitan Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan Steel Corp has no effect on the direction of Reliance Insurance i.e., Reliance Insurance and Metropolitan Steel go up and down completely randomly.

Pair Corralation between Reliance Insurance and Metropolitan Steel

Assuming the 90 days trading horizon Reliance Insurance Co is expected to generate 1.74 times more return on investment than Metropolitan Steel. However, Reliance Insurance is 1.74 times more volatile than Metropolitan Steel Corp. It trades about 0.01 of its potential returns per unit of risk. Metropolitan Steel Corp is currently generating about -0.05 per unit of risk. If you would invest  1,225  in Reliance Insurance Co on December 4, 2024 and sell it today you would lose (25.00) from holding Reliance Insurance Co or give up 2.04% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	88.71%
Values	Daily Returns

Reliance Insurance Co  vs.  Metropolitan Steel Corp

Reliance Insurance

Risk-Adjusted Performance

Very Weak

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

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Reliance Insurance and Metropolitan Steel

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

The idea behind Reliance Insurance Co and Metropolitan Steel Corp 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.