Correlation Between Olympic Steel and National Beverage

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

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

Diversification Opportunities for Olympic Steel and National Beverage

0.72

Correlation Coefficient

Olympic Steel  National Beverage

Poor diversification

The 3 months correlation between Olympic and National is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Olympic Steel and National Beverage Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Beverage Corp and Olympic 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 Olympic Steel are associated (or correlated) with National Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Beverage Corp has no effect on the direction of Olympic Steel i.e., Olympic Steel and National Beverage go up and down completely randomly.

Pair Corralation between Olympic Steel and National Beverage

Given the investment horizon of 90 days Olympic Steel is expected to generate 1.71 times more return on investment than National Beverage. However, Olympic Steel is 1.71 times more volatile than National Beverage Corp. It trades about 0.06 of its potential returns per unit of risk. National Beverage Corp is currently generating about 0.06 per unit of risk. If you would invest  3,846  in Olympic Steel on September 13, 2024 and sell it today you would earn a total of  328.00  from holding Olympic Steel or generate 8.53% return on investment over 90 days.

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

Olympic Steel  vs.  National Beverage Corp

Olympic Steel

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Olympic Steel are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Olympic Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

National Beverage Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in National Beverage Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, National Beverage is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Olympic Steel and National Beverage

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

The idea behind Olympic Steel and National Beverage Corp 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.