Correlation Between Reliance Steel and Loblaw Companies

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

Diversification Opportunities for Reliance Steel and Loblaw Companies

0.67

Correlation Coefficient

Reliance Steel  Loblaw Companies

Poor diversification

The 3 months correlation between Reliance and Loblaw is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Loblaw Companies Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loblaw Companies 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 Loblaw Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loblaw Companies has no effect on the direction of Reliance Steel i.e., Reliance Steel and Loblaw Companies go up and down completely randomly.

Pair Corralation between Reliance Steel and Loblaw Companies

Assuming the 90 days horizon Reliance Steel is expected to generate 3.48 times less return on investment than Loblaw Companies. In addition to that, Reliance Steel is 1.49 times more volatile than Loblaw Companies Limited. It trades about 0.03 of its total potential returns per unit of risk. Loblaw Companies Limited is currently generating about 0.14 per unit of volatility. If you would invest  8,450  in Loblaw Companies Limited on September 20, 2024 and sell it today you would earn a total of  4,250  from holding Loblaw Companies Limited or generate 50.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Reliance Steel Aluminum  vs.  Loblaw Companies Limited

Reliance Steel Aluminum

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Reliance Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Loblaw Companies

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Loblaw Companies Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Loblaw Companies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Steel and Loblaw Companies

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

The idea behind Reliance Steel Aluminum and Loblaw Companies Limited 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.