Correlation Between Reliance Steel and NOV

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

Diversification Opportunities for Reliance Steel and NOV

0.65

Correlation Coefficient

Reliance Steel  NOV

Poor diversification

The 3 months correlation between Reliance and NOV is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and NOV Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NOV Inc 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 NOV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NOV Inc has no effect on the direction of Reliance Steel i.e., Reliance Steel and NOV go up and down completely randomly.

Pair Corralation between Reliance Steel and NOV

Assuming the 90 days horizon Reliance Steel Aluminum is expected to generate 0.64 times more return on investment than NOV. However, Reliance Steel Aluminum is 1.55 times less risky than NOV. It trades about -0.15 of its potential returns per unit of risk. NOV Inc is currently generating about -0.25 per unit of risk. If you would invest  30,218  in Reliance Steel Aluminum on September 13, 2024 and sell it today you would lose (1,108) from holding Reliance Steel Aluminum or give up 3.67% of portfolio value over 90 days.

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

Reliance Steel Aluminum  vs.  NOV Inc

Reliance Steel Aluminum

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Reliance Steel reported solid returns over the last few months and may actually be approaching a breakup point.

NOV Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NOV Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, NOV is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Reliance Steel and NOV

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

The idea behind Reliance Steel Aluminum and NOV Inc 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.