Correlation Between NOV and Reliance Steel

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

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

Diversification Opportunities for NOV and Reliance Steel

0.65

Correlation Coefficient

NOV  Reliance Steel

Poor diversification

The 3 months correlation between NOV and Reliance is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding NOV Inc 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 NOV 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 NOV Inc 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 NOV i.e., NOV and Reliance Steel go up and down completely randomly.

Pair Corralation between NOV and Reliance Steel

Assuming the 90 days horizon NOV is expected to generate 5.59 times less return on investment than Reliance Steel. But when comparing it to its historical volatility, NOV Inc is 1.08 times less risky than Reliance Steel. It trades about 0.02 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  24,867  in Reliance Steel Aluminum on September 14, 2024 and sell it today you would earn a total of  4,243  from holding Reliance Steel Aluminum or generate 17.06% return on investment over 90 days.

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

NOV Inc  vs.  Reliance Steel Aluminum

NOV Inc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NOV Inc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, NOV 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

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 NOV and Reliance Steel

The main advantage of trading using opposite NOV and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NOV 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 NOV Inc 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.