Correlation Between Reliance Steel and Northland Power

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

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

Diversification Opportunities for Reliance Steel and Northland Power

-0.38

Correlation Coefficient

Reliance Steel  Northland Power

Very good diversification

The 3 months correlation between Reliance and Northland is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power and Reliance 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 Reliance Steel Aluminum are associated (or correlated) with Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Reliance Steel i.e., Reliance Steel and Northland Power go up and down completely randomly.

Pair Corralation between Reliance Steel and Northland Power

Assuming the 90 days horizon Reliance Steel Aluminum is expected to under-perform the Northland Power. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Steel Aluminum is 1.58 times less risky than Northland Power. The stock trades about -0.63 of its potential returns per unit of risk. The Northland Power is currently generating about -0.37 of returns per unit of risk over similar time horizon. If you would invest  1,399  in Northland Power on October 1, 2024 and sell it today you would lose (195.00) from holding Northland Power or give up 13.94% of portfolio value over 90 days.

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

Reliance Steel Aluminum  vs.  Northland Power

Reliance Steel Aluminum

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Reliance Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Northland Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Northland Power has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Reliance Steel and Northland Power

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

The idea behind Reliance Steel Aluminum and Northland Power 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.