Correlation Between RELIANCE STEEL and Freeport McMoRan

Can any of the company-specific risk be diversified away by investing in both RELIANCE STEEL and Freeport McMoRan 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 Freeport McMoRan into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between RELIANCE STEEL AL and Freeport McMoRan, you can compare the effects of market volatilities on RELIANCE STEEL and Freeport McMoRan 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 Freeport McMoRan. Check out your portfolio center. Please also check ongoing floating volatility patterns of RELIANCE STEEL and Freeport McMoRan.

Diversification Opportunities for RELIANCE STEEL and Freeport McMoRan

-0.3

Correlation Coefficient

RELIANCE STEEL  Freeport McMoRan

Very good diversification

The 3 months correlation between RELIANCE and Freeport is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding RELIANCE STEEL AL and Freeport McMoRan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Freeport McMoRan 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 AL are associated (or correlated) with Freeport McMoRan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Freeport McMoRan has no effect on the direction of RELIANCE STEEL i.e., RELIANCE STEEL and Freeport McMoRan go up and down completely randomly.

Pair Corralation between RELIANCE STEEL and Freeport McMoRan

Assuming the 90 days trading horizon RELIANCE STEEL AL is expected to generate 0.77 times more return on investment than Freeport McMoRan. However, RELIANCE STEEL AL is 1.3 times less risky than Freeport McMoRan. It trades about 0.01 of its potential returns per unit of risk. Freeport McMoRan is currently generating about -0.05 per unit of risk. If you would invest  25,337  in RELIANCE STEEL AL on September 23, 2024 and sell it today you would earn a total of  143.00  from holding RELIANCE STEEL AL or generate 0.56% return on investment over 90 days.

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

RELIANCE STEEL AL  vs.  Freeport McMoRan

RELIANCE STEEL AL

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RELIANCE STEEL AL are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, RELIANCE STEEL is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Freeport McMoRan

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Freeport McMoRan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with RELIANCE STEEL and Freeport McMoRan

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

The idea behind RELIANCE STEEL AL and Freeport McMoRan 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.