Correlation Between Steel Dynamics and RELIANCE STEEL

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

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

Diversification Opportunities for Steel Dynamics and RELIANCE STEEL

0.93

Correlation Coefficient

Steel Dynamics  RELIANCE STEEL

Almost no diversification

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

Pair Corralation between Steel Dynamics and RELIANCE STEEL

Assuming the 90 days horizon Steel Dynamics is expected to generate 1.51 times more return on investment than RELIANCE STEEL. However, Steel Dynamics is 1.51 times more volatile than RELIANCE STEEL AL. It trades about 0.16 of its potential returns per unit of risk. RELIANCE STEEL AL is currently generating about 0.16 per unit of risk. If you would invest  10,648  in Steel Dynamics on September 3, 2024 and sell it today you would earn a total of  2,828  from holding Steel Dynamics or generate 26.56% return on investment over 90 days.

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

Steel Dynamics  vs.  RELIANCE STEEL AL

Steel Dynamics

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Steel Dynamics are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Steel Dynamics reported solid returns over the last few months and may actually be approaching a breakup point.

RELIANCE STEEL AL

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RELIANCE STEEL AL are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, RELIANCE STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Dynamics and RELIANCE STEEL

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

The idea behind Steel Dynamics and RELIANCE STEEL AL 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 Anywhere module to track or share privately all of your investments from the convenience of any device.