Correlation Between Smith Douglas and RELIANCE

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

By analyzing existing cross correlation between Smith Douglas Homes and RELIANCE STL ALUM, you can compare the effects of market volatilities on Smith Douglas and RELIANCE 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 Smith Douglas with a short position of RELIANCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Smith Douglas and RELIANCE.

Diversification Opportunities for Smith Douglas and RELIANCE

-0.13

Correlation Coefficient

Smith Douglas  RELIANCE

Good diversification

The 3 months correlation between Smith and RELIANCE is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Smith Douglas Homes and RELIANCE STL ALUM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RELIANCE STL ALUM and Smith Douglas 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 Smith Douglas Homes are associated (or correlated) with RELIANCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RELIANCE STL ALUM has no effect on the direction of Smith Douglas i.e., Smith Douglas and RELIANCE go up and down completely randomly.

Pair Corralation between Smith Douglas and RELIANCE

Given the investment horizon of 90 days Smith Douglas Homes is expected to under-perform the RELIANCE. In addition to that, Smith Douglas is 1.09 times more volatile than RELIANCE STL ALUM. It trades about -0.43 of its total potential returns per unit of risk. RELIANCE STL ALUM is currently generating about -0.37 per unit of volatility. If you would invest  11,197  in RELIANCE STL ALUM on September 29, 2024 and sell it today you would lose (367.00) from holding RELIANCE STL ALUM or give up 3.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	20.0%
Values	Daily Returns

Smith Douglas Homes  vs.  RELIANCE STL ALUM

Smith Douglas Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Smith Douglas Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

RELIANCE STL ALUM

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RELIANCE STL ALUM has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for RELIANCE STL ALUM investors.

Pair Trading with Smith Douglas and RELIANCE

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

The idea behind Smith Douglas Homes and RELIANCE STL ALUM 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 Transaction History module to view history of all your transactions and understand their impact on performance.