Correlation Between Reliance Steel and MELIA HOTELS

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

Diversification Opportunities for Reliance Steel and MELIA HOTELS

0.25

Correlation Coefficient

Reliance Steel  MELIA HOTELS

Modest diversification

The 3 months correlation between Reliance and MELIA is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and MELIA HOTELS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MELIA HOTELS 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 MELIA HOTELS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MELIA HOTELS has no effect on the direction of Reliance Steel i.e., Reliance Steel and MELIA HOTELS go up and down completely randomly.

Pair Corralation between Reliance Steel and MELIA HOTELS

Assuming the 90 days horizon Reliance Steel Aluminum is expected to generate 0.87 times more return on investment than MELIA HOTELS. However, Reliance Steel Aluminum is 1.15 times less risky than MELIA HOTELS. It trades about 0.04 of its potential returns per unit of risk. MELIA HOTELS is currently generating about -0.08 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 Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Reliance Steel Aluminum  vs.  MELIA HOTELS

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.

MELIA HOTELS

Risk-Adjusted Performance

Very Weak

Over the last 90 days MELIA HOTELS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Reliance Steel and MELIA HOTELS

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

The idea behind Reliance Steel Aluminum and MELIA HOTELS 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.