Correlation Between Reliance Steel and China Water

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

Diversification Opportunities for Reliance Steel and China Water

-0.17

Correlation Coefficient

Reliance Steel  China Water

Good diversification

The 3 months correlation between Reliance and China is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and China Water Affairs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Water Affairs 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 China Water. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Water Affairs has no effect on the direction of Reliance Steel i.e., Reliance Steel and China Water go up and down completely randomly.

Pair Corralation between Reliance Steel and China Water

Assuming the 90 days horizon Reliance Steel Aluminum is expected to under-perform the China Water. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Steel Aluminum is 1.93 times less risky than China Water. The stock trades about -0.54 of its potential returns per unit of risk. The China Water Affairs is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  52.00  in China Water Affairs on September 25, 2024 and sell it today you would earn a total of  7.00  from holding China Water Affairs or generate 13.46% return on investment over 90 days.

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

Reliance Steel Aluminum  vs.  China Water Affairs

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.

China Water Affairs

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Water Affairs are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, China Water reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Steel and China Water

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

The idea behind Reliance Steel Aluminum and China Water Affairs 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.