Correlation Between Reliance Steel and Carnival Plc

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

Diversification Opportunities for Reliance Steel and Carnival Plc

0.93

Correlation Coefficient

Reliance Steel  Carnival Plc

Almost no diversification

The 3 months correlation between Reliance and Carnival is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Carnival plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carnival plc 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 Carnival Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carnival plc has no effect on the direction of Reliance Steel i.e., Reliance Steel and Carnival Plc go up and down completely randomly.

Pair Corralation between Reliance Steel and Carnival Plc

Assuming the 90 days horizon Reliance Steel is expected to generate 2.69 times less return on investment than Carnival Plc. But when comparing it to its historical volatility, Reliance Steel Aluminum is 1.22 times less risky than Carnival Plc. It trades about 0.13 of its potential returns per unit of risk. Carnival plc is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  1,601  in Carnival plc on September 14, 2024 and sell it today you would earn a total of  899.00  from holding Carnival plc or generate 56.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.46%
Values	Daily Returns

Reliance Steel Aluminum  vs.  Carnival plc

Reliance Steel Aluminum

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Reliance Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Carnival plc

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carnival plc are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Carnival Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Steel and Carnival Plc

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

The idea behind Reliance Steel Aluminum and Carnival plc 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.