Correlation Between JAMES HARDIE and Reliance Steel

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

By analyzing existing cross correlation between JAMES HARDIE INDUSTADR1 and Reliance Steel Aluminum, you can compare the effects of market volatilities on JAMES HARDIE 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 JAMES HARDIE with a short position of Reliance Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of JAMES HARDIE and Reliance Steel.

Diversification Opportunities for JAMES HARDIE and Reliance Steel

-0.71

Correlation Coefficient

JAMES HARDIE  Reliance Steel

Pay attention - limited upside

The 3 months correlation between JAMES and Reliance is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding JAMES HARDIE INDUSTADR1 and Reliance Steel Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Steel Aluminum and JAMES HARDIE 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 JAMES HARDIE INDUSTADR1 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 Aluminum has no effect on the direction of JAMES HARDIE i.e., JAMES HARDIE and Reliance Steel go up and down completely randomly.

Pair Corralation between JAMES HARDIE and Reliance Steel

Assuming the 90 days trading horizon JAMES HARDIE INDUSTADR1 is expected to generate 1.61 times more return on investment than Reliance Steel. However, JAMES HARDIE is 1.61 times more volatile than Reliance Steel Aluminum. It trades about 0.06 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about 0.05 per unit of risk. If you would invest  1,610  in JAMES HARDIE INDUSTADR1 on September 20, 2024 and sell it today you would earn a total of  1,530  from holding JAMES HARDIE INDUSTADR1 or generate 95.03% return on investment over 90 days.

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

JAMES HARDIE INDUSTADR1  vs.  Reliance Steel Aluminum

JAMES HARDIE INDUSTADR1

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in JAMES HARDIE INDUSTADR1 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, JAMES HARDIE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Reliance Steel Aluminum

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with JAMES HARDIE and Reliance Steel

The main advantage of trading using opposite JAMES HARDIE and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JAMES HARDIE 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 JAMES HARDIE INDUSTADR1 and Reliance Steel Aluminum 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.