Correlation Between Reliance Steel and Penta Ocean

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

Diversification Opportunities for Reliance Steel and Penta Ocean

-0.34

Correlation Coefficient

Reliance Steel  Penta Ocean

Very good diversification

The 3 months correlation between Reliance and Penta is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Penta Ocean Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penta Ocean Construc 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 Penta Ocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penta Ocean Construc has no effect on the direction of Reliance Steel i.e., Reliance Steel and Penta Ocean go up and down completely randomly.

Pair Corralation between Reliance Steel and Penta Ocean

Assuming the 90 days horizon Reliance Steel Aluminum is expected to generate 1.43 times more return on investment than Penta Ocean. However, Reliance Steel is 1.43 times more volatile than Penta Ocean Construction Co. It trades about 0.13 of its potential returns per unit of risk. Penta Ocean Construction Co is currently generating about 0.07 per unit of risk. If you would invest  24,598  in Reliance Steel Aluminum on September 12, 2024 and sell it today you would earn a total of  4,202  from holding Reliance Steel Aluminum or generate 17.08% return on investment over 90 days.

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

Reliance Steel Aluminum  vs.  Penta Ocean Construction Co

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.

Penta Ocean Construc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Penta Ocean Construction Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Penta Ocean 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 Penta Ocean

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

The idea behind Reliance Steel Aluminum and Penta Ocean Construction Co 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.