Correlation Between National Bank and Reliance Steel

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

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

Diversification Opportunities for National Bank and Reliance Steel

0.94

Correlation Coefficient

National Bank  Reliance Steel

Almost no diversification

The 3 months correlation between National and Reliance is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding National Bank Holdings 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 National Bank 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 National Bank Holdings 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 National Bank i.e., National Bank and Reliance Steel go up and down completely randomly.

Pair Corralation between National Bank and Reliance Steel

Assuming the 90 days horizon National Bank Holdings is expected to generate 1.25 times more return on investment than Reliance Steel. However, National Bank is 1.25 times more volatile than Reliance Steel Aluminum. It trades about 0.13 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about 0.14 per unit of risk. If you would invest  3,597  in National Bank Holdings on September 12, 2024 and sell it today you would earn a total of  783.00  from holding National Bank Holdings or generate 21.77% return on investment over 90 days.

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

National Bank Holdings  vs.  Reliance Steel Aluminum

National Bank Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Bank Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, National Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Reliance Steel Aluminum

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Reliance Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Bank and Reliance Steel

The main advantage of trading using opposite National Bank and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Bank 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 National Bank Holdings 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.