Correlation Between RELIANCE STEEL and Carsales

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

Diversification Opportunities for RELIANCE STEEL and Carsales

0.93

Correlation Coefficient

RELIANCE STEEL  Carsales

Almost no diversification

The 3 months correlation between RELIANCE and Carsales is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding RELIANCE STEEL AL and CarsalesCom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CarsalesCom 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 Carsales. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CarsalesCom has no effect on the direction of RELIANCE STEEL i.e., RELIANCE STEEL and Carsales go up and down completely randomly.

Pair Corralation between RELIANCE STEEL and Carsales

Assuming the 90 days trading horizon RELIANCE STEEL AL is expected to under-perform the Carsales. In addition to that, RELIANCE STEEL is 1.05 times more volatile than CarsalesCom. It trades about -0.4 of its total potential returns per unit of risk. CarsalesCom is currently generating about -0.1 per unit of volatility. If you would invest  2,360  in CarsalesCom on October 11, 2024 and sell it today you would lose (60.00) from holding CarsalesCom or give up 2.54% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	94.44%
Values	Daily Returns

RELIANCE STEEL AL  vs.  CarsalesCom

RELIANCE STEEL AL

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, RELIANCE STEEL is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

CarsalesCom

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with RELIANCE STEEL and Carsales

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

The idea behind RELIANCE STEEL AL and CarsalesCom 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.