Correlation Between Lam Research and Reliance Steel

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

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

Diversification Opportunities for Lam Research and Reliance Steel

0.1

Correlation Coefficient

Lam Research  Reliance Steel

Average diversification

The 3 months correlation between Lam and Reliance is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Lam Research 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 Lam Research 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 Lam Research 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 Lam Research i.e., Lam Research and Reliance Steel go up and down completely randomly.

Pair Corralation between Lam Research and Reliance Steel

Assuming the 90 days horizon Lam Research is expected to generate 1.34 times more return on investment than Reliance Steel. However, Lam Research is 1.34 times more volatile than Reliance Steel Aluminum. It trades about 0.1 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about 0.12 per unit of risk. If you would invest  6,520  in Lam Research on September 16, 2024 and sell it today you would earn a total of  930.00  from holding Lam Research or generate 14.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.36%
Values	Daily Returns

Lam Research  vs.  Reliance Steel Aluminum

Lam Research

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Lam Research has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Lam Research reported solid returns over the last few months and may actually be approaching a breakup point.

Reliance Steel Aluminum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Reliance Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lam Research and Reliance Steel

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

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.