Correlation Between Reliance Steel and POSCO Holdings

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

Diversification Opportunities for Reliance Steel and POSCO Holdings

0.63

Correlation Coefficient

Reliance Steel  POSCO Holdings

Poor diversification

The 3 months correlation between Reliance and POSCO is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO Holdings 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 POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of Reliance Steel i.e., Reliance Steel and POSCO Holdings go up and down completely randomly.

Pair Corralation between Reliance Steel and POSCO Holdings

Assuming the 90 days horizon Reliance Steel Aluminum is expected to under-perform the POSCO Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Steel Aluminum is 1.94 times less risky than POSCO Holdings. The stock trades about -0.08 of its potential returns per unit of risk. The POSCO Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  4,720  in POSCO Holdings on November 29, 2024 and sell it today you would lose (180.00) from holding POSCO Holdings or give up 3.81% 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.  POSCO Holdings

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 weak 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.

POSCO Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days POSCO Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, POSCO Holdings is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Reliance Steel and POSCO Holdings

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

The idea behind Reliance Steel Aluminum and POSCO Holdings 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.