Correlation Between Reliance Steel and Freshpet

Can any of the company-specific risk be diversified away by investing in both Reliance Steel and Freshpet 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 Freshpet 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 Freshpet, you can compare the effects of market volatilities on Reliance Steel and Freshpet 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 Freshpet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Steel and Freshpet.

Diversification Opportunities for Reliance Steel and Freshpet

0.86

Correlation Coefficient

Reliance Steel  Freshpet

Very poor diversification

The 3 months correlation between Reliance and Freshpet is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Freshpet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freshpet 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 Freshpet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freshpet has no effect on the direction of Reliance Steel i.e., Reliance Steel and Freshpet go up and down completely randomly.

Pair Corralation between Reliance Steel and Freshpet

Assuming the 90 days horizon Reliance Steel Aluminum is expected to under-perform the Freshpet. In addition to that, Reliance Steel is 1.15 times more volatile than Freshpet. It trades about -0.6 of its total potential returns per unit of risk. Freshpet is currently generating about -0.4 per unit of volatility. If you would invest  14,870  in Freshpet on September 23, 2024 and sell it today you would lose (1,370) from holding Freshpet or give up 9.21% of portfolio value over 90 days.

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

Reliance Steel Aluminum  vs.  Freshpet

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.

Freshpet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Freshpet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Freshpet is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Reliance Steel and Freshpet

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

The idea behind Reliance Steel Aluminum and Freshpet 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.