Correlation Between Reliance Steel and Hormel Foods

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

Diversification Opportunities for Reliance Steel and Hormel Foods

-0.05

Correlation Coefficient

Reliance Steel  Hormel Foods

Good diversification

The 3 months correlation between Reliance and Hormel is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Hormel Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hormel Foods 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 Hormel Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hormel Foods has no effect on the direction of Reliance Steel i.e., Reliance Steel and Hormel Foods go up and down completely randomly.

Pair Corralation between Reliance Steel and Hormel Foods

Assuming the 90 days horizon Reliance Steel Aluminum is expected to generate 1.09 times more return on investment than Hormel Foods. However, Reliance Steel is 1.09 times more volatile than Hormel Foods. It trades about 0.16 of its potential returns per unit of risk. Hormel Foods is currently generating about -0.18 per unit of risk. If you would invest  26,000  in Reliance Steel Aluminum on December 3, 2024 and sell it today you would earn a total of  2,330  from holding Reliance Steel Aluminum or generate 8.96% 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.  Hormel Foods

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 uncertain 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.

Hormel Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hormel Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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.

Pair Trading with Reliance Steel and Hormel Foods

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

The idea behind Reliance Steel Aluminum and Hormel Foods 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.