Correlation Between Century Aluminum and Olympic Steel

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

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

Diversification Opportunities for Century Aluminum and Olympic Steel

0.73

Correlation Coefficient

Century Aluminum  Olympic Steel

Poor diversification

The 3 months correlation between Century and Olympic is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Century Aluminum and Olympic Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Olympic Steel and Century Aluminum 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 Century Aluminum are associated (or correlated) with Olympic Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Olympic Steel has no effect on the direction of Century Aluminum i.e., Century Aluminum and Olympic Steel go up and down completely randomly.

Pair Corralation between Century Aluminum and Olympic Steel

Given the investment horizon of 90 days Century Aluminum is expected to generate 1.41 times more return on investment than Olympic Steel. However, Century Aluminum is 1.41 times more volatile than Olympic Steel. It trades about 0.23 of its potential returns per unit of risk. Olympic Steel is currently generating about 0.08 per unit of risk. If you would invest  1,304  in Century Aluminum on September 12, 2024 and sell it today you would earn a total of  894.00  from holding Century Aluminum or generate 68.56% return on investment over 90 days.

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

Century Aluminum  vs.  Olympic Steel

Century Aluminum

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Olympic Steel

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Olympic Steel are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Olympic Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Century Aluminum and Olympic Steel

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

The idea behind Century Aluminum and Olympic Steel 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.