Correlation Between Olympic Steel and Sea

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

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

Diversification Opportunities for Olympic Steel and Sea

0.2

Correlation Coefficient

Olympic Steel  Sea

Modest diversification

The 3 months correlation between Olympic and Sea is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Olympic Steel and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Olympic Steel i.e., Olympic Steel and Sea go up and down completely randomly.

Pair Corralation between Olympic Steel and Sea

Given the investment horizon of 90 days Olympic Steel is expected to generate 16.39 times less return on investment than Sea. But when comparing it to its historical volatility, Olympic Steel is 1.14 times less risky than Sea. It trades about 0.01 of its potential returns per unit of risk. Sea is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  10,872  in Sea on December 27, 2024 and sell it today you would earn a total of  2,491  from holding Sea or generate 22.91% return on investment over 90 days.

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

Olympic Steel  vs.  Sea

Olympic Steel

Risk-Adjusted Performance

Weak

Over the last 90 days Olympic Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Olympic Steel is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Sea

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Olympic Steel and Sea

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

The idea behind Olympic Steel and Sea 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.