Correlation Between Reliance Steel and Xtrackers LevDAX

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

Diversification Opportunities for Reliance Steel and Xtrackers LevDAX

0.11

Correlation Coefficient

Reliance Steel  Xtrackers LevDAX

Average diversification

The 3 months correlation between Reliance and Xtrackers is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Xtrackers LevDAX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers LevDAX 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 Xtrackers LevDAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers LevDAX has no effect on the direction of Reliance Steel i.e., Reliance Steel and Xtrackers LevDAX go up and down completely randomly.

Pair Corralation between Reliance Steel and Xtrackers LevDAX

Assuming the 90 days horizon Reliance Steel Aluminum is expected to under-perform the Xtrackers LevDAX. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Steel Aluminum is 1.46 times less risky than Xtrackers LevDAX. The stock trades about -0.44 of its potential returns per unit of risk. The Xtrackers LevDAX is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  18,422  in Xtrackers LevDAX on September 22, 2024 and sell it today you would earn a total of  2,308  from holding Xtrackers LevDAX or generate 12.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Reliance Steel Aluminum  vs.  Xtrackers LevDAX

Reliance Steel Aluminum

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 2 (%) 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.

Xtrackers LevDAX

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers LevDAX are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Xtrackers LevDAX reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Steel and Xtrackers LevDAX

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

The idea behind Reliance Steel Aluminum and Xtrackers LevDAX 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.