Correlation Between Reliance Steel and GUDANG GARAM

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

Diversification Opportunities for Reliance Steel and GUDANG GARAM

-0.06

Correlation Coefficient

Reliance Steel  GUDANG GARAM

Good diversification

The 3 months correlation between Reliance and GUDANG is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and GUDANG GARAM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GUDANG GARAM 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 GUDANG GARAM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GUDANG GARAM has no effect on the direction of Reliance Steel i.e., Reliance Steel and GUDANG GARAM go up and down completely randomly.

Pair Corralation between Reliance Steel and GUDANG GARAM

Assuming the 90 days horizon Reliance Steel Aluminum is expected to generate 0.6 times more return on investment than GUDANG GARAM. However, Reliance Steel Aluminum is 1.67 times less risky than GUDANG GARAM. It trades about 0.04 of its potential returns per unit of risk. GUDANG GARAM is currently generating about -0.18 per unit of risk. If you would invest  25,671  in Reliance Steel Aluminum on December 30, 2024 and sell it today you would earn a total of  799.00  from holding Reliance Steel Aluminum or generate 3.11% 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.  GUDANG GARAM

Reliance Steel Aluminum

Risk-Adjusted Performance

Insignificant

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.

GUDANG GARAM

Risk-Adjusted Performance

Very Weak

Over the last 90 days GUDANG GARAM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Reliance Steel and GUDANG GARAM

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

The idea behind Reliance Steel Aluminum and GUDANG GARAM 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.