Correlation Between Reliance Steel and Cardinal Health

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

Diversification Opportunities for Reliance Steel and Cardinal Health

0.53

Correlation Coefficient

Reliance Steel  Cardinal Health

Very weak diversification

The 3 months correlation between Reliance and Cardinal is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Cardinal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Health 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 Cardinal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Health has no effect on the direction of Reliance Steel i.e., Reliance Steel and Cardinal Health go up and down completely randomly.

Pair Corralation between Reliance Steel and Cardinal Health

Assuming the 90 days horizon Reliance Steel is expected to generate 2.97 times less return on investment than Cardinal Health. In addition to that, Reliance Steel is 1.17 times more volatile than Cardinal Health. It trades about 0.04 of its total potential returns per unit of risk. Cardinal Health is currently generating about 0.13 per unit of volatility. If you would invest  11,315  in Cardinal Health on December 30, 2024 and sell it today you would earn a total of  1,300  from holding Cardinal Health or generate 11.49% return on investment over 90 days.

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

Reliance Steel Aluminum  vs.  Cardinal Health

Reliance Steel Aluminum

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 3 (%) 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.

Cardinal Health

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cardinal Health may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Reliance Steel and Cardinal Health

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

The idea behind Reliance Steel Aluminum and Cardinal Health 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.