Correlation Between Transcontinental and Russel Metals

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

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

Diversification Opportunities for Transcontinental and Russel Metals

0.39

Correlation Coefficient

Transcontinental  Russel Metals

Weak diversification

The 3 months correlation between Transcontinental and Russel is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Transcontinental and Russel Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Russel Metals and Transcontinental 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 Transcontinental are associated (or correlated) with Russel Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Russel Metals has no effect on the direction of Transcontinental i.e., Transcontinental and Russel Metals go up and down completely randomly.

Pair Corralation between Transcontinental and Russel Metals

Assuming the 90 days trading horizon Transcontinental is expected to generate 2.8 times less return on investment than Russel Metals. But when comparing it to its historical volatility, Transcontinental is 1.31 times less risky than Russel Metals. It trades about 0.1 of its potential returns per unit of risk. Russel Metals is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3,728  in Russel Metals on September 13, 2024 and sell it today you would earn a total of  823.00  from holding Russel Metals or generate 22.08% return on investment over 90 days.

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

Transcontinental  vs.  Russel Metals

Transcontinental

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Transcontinental are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Transcontinental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Russel Metals

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Russel Metals are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Russel Metals displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Transcontinental and Russel Metals

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

The idea behind Transcontinental and Russel Metals 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.