Correlation Between RELIANCE STEEL and CHINA SOUTHN

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

Diversification Opportunities for RELIANCE STEEL and CHINA SOUTHN

-0.03

Correlation Coefficient

RELIANCE STEEL  CHINA SOUTHN

Good diversification

The 3 months correlation between RELIANCE and CHINA is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding RELIANCE STEEL AL and CHINA SOUTHN AIR H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA SOUTHN AIR 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 CHINA SOUTHN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA SOUTHN AIR has no effect on the direction of RELIANCE STEEL i.e., RELIANCE STEEL and CHINA SOUTHN go up and down completely randomly.

Pair Corralation between RELIANCE STEEL and CHINA SOUTHN

Assuming the 90 days trading horizon RELIANCE STEEL is expected to generate 4.99 times less return on investment than CHINA SOUTHN. But when comparing it to its historical volatility, RELIANCE STEEL AL is 1.83 times less risky than CHINA SOUTHN. It trades about 0.05 of its potential returns per unit of risk. CHINA SOUTHN AIR H is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  37.00  in CHINA SOUTHN AIR H on October 26, 2024 and sell it today you would earn a total of  9.00  from holding CHINA SOUTHN AIR H or generate 24.32% 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.  CHINA SOUTHN AIR H

RELIANCE STEEL AL

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RELIANCE STEEL AL are ranked lower than 3 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

CHINA SOUTHN AIR

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA SOUTHN AIR H are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CHINA SOUTHN unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RELIANCE STEEL and CHINA SOUTHN

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

The idea behind RELIANCE STEEL AL and CHINA SOUTHN AIR H 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.