Correlation Between RELIANCE STEEL and Sims Metal

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

Diversification Opportunities for RELIANCE STEEL and Sims Metal

0.59

Correlation Coefficient

RELIANCE STEEL  Sims Metal

Very weak diversification

The 3 months correlation between RELIANCE and Sims is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding RELIANCE STEEL AL and Sims Metal Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sims Metal Management 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 Sims Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sims Metal Management has no effect on the direction of RELIANCE STEEL i.e., RELIANCE STEEL and Sims Metal go up and down completely randomly.

Pair Corralation between RELIANCE STEEL and Sims Metal

Assuming the 90 days trading horizon RELIANCE STEEL AL is expected to under-perform the Sims Metal. But the stock apears to be less risky and, when comparing its historical volatility, RELIANCE STEEL AL is 1.41 times less risky than Sims Metal. The stock trades about -0.08 of its potential returns per unit of risk. The Sims Metal Management is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  805.00  in Sims Metal Management on December 2, 2024 and sell it today you would earn a total of  45.00  from holding Sims Metal Management or generate 5.59% return on investment over 90 days.

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

RELIANCE STEEL AL  vs.  Sims Metal Management

RELIANCE STEEL AL

Risk-Adjusted Performance

Very Weak

Over the last 90 days RELIANCE STEEL AL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Sims Metal Management

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sims Metal may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with RELIANCE STEEL and Sims Metal

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

The idea behind RELIANCE STEEL AL and Sims Metal Management 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.