Correlation Between Reliance Steel and Nucor

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

Diversification Opportunities for Reliance Steel and Nucor

0.53

Correlation Coefficient

Reliance Steel  Nucor

Very weak diversification

The 3 months correlation between Reliance and Nucor is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Nucor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nucor 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 Nucor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nucor has no effect on the direction of Reliance Steel i.e., Reliance Steel and Nucor go up and down completely randomly.

Pair Corralation between Reliance Steel and Nucor

Assuming the 90 days horizon Reliance Steel Aluminum is expected to generate 0.68 times more return on investment than Nucor. However, Reliance Steel Aluminum is 1.46 times less risky than Nucor. It trades about 0.0 of its potential returns per unit of risk. Nucor is currently generating about -0.06 per unit of risk. If you would invest  26,258  in Reliance Steel Aluminum on September 22, 2024 and sell it today you would lose (508.00) from holding Reliance Steel Aluminum or give up 1.93% of portfolio value over 90 days.

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

Reliance Steel Aluminum  vs.  Nucor

Reliance Steel Aluminum

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 2 (%) 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.

Nucor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nucor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Reliance Steel and Nucor

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

The idea behind Reliance Steel Aluminum and Nucor 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.