Correlation Between Safety Insurance and RELIANCE STEEL

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

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

Diversification Opportunities for Safety Insurance and RELIANCE STEEL

0.73

Correlation Coefficient

Safety Insurance  RELIANCE STEEL

Poor diversification

The 3 months correlation between Safety and RELIANCE is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Safety Insurance Group 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 Safety Insurance 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 Safety Insurance Group 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 Safety Insurance i.e., Safety Insurance and RELIANCE STEEL go up and down completely randomly.

Pair Corralation between Safety Insurance and RELIANCE STEEL

Assuming the 90 days horizon Safety Insurance is expected to generate 1.96 times less return on investment than RELIANCE STEEL. But when comparing it to its historical volatility, Safety Insurance Group is 1.0 times less risky than RELIANCE STEEL. It trades about 0.02 of its potential returns per unit of risk. RELIANCE STEEL AL is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  21,108  in RELIANCE STEEL AL on September 29, 2024 and sell it today you would earn a total of  4,872  from holding RELIANCE STEEL AL or generate 23.08% return on investment over 90 days.

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

Safety Insurance Group  vs.  RELIANCE STEEL AL

Safety Insurance

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Safety Insurance Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Safety Insurance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

RELIANCE STEEL AL

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RELIANCE STEEL AL are ranked lower than 1 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Safety Insurance and RELIANCE STEEL

The main advantage of trading using opposite Safety Insurance and RELIANCE STEEL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Safety Insurance 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 Safety Insurance Group 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.