Correlation Between Reliance Steel and Daimler Truck

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

Diversification Opportunities for Reliance Steel and Daimler Truck

-0.17

Correlation Coefficient

Reliance Steel  Daimler Truck

Good diversification

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

Pair Corralation between Reliance Steel and Daimler Truck

Assuming the 90 days horizon Reliance Steel Aluminum is expected to under-perform the Daimler Truck. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Steel Aluminum is 1.39 times less risky than Daimler Truck. The stock trades about -0.08 of its potential returns per unit of risk. The Daimler Truck Holding is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,603  in Daimler Truck Holding on December 2, 2024 and sell it today you would earn a total of  608.00  from holding Daimler Truck Holding or generate 16.87% 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.  Daimler Truck Holding

Reliance Steel Aluminum

Risk-Adjusted Performance

Very Weak

Over the last 90 days Reliance Steel Aluminum has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Daimler Truck Holding

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daimler Truck Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Daimler Truck unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Steel and Daimler Truck

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

The idea behind Reliance Steel Aluminum and Daimler Truck Holding 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.