Correlation Between Reliance Steel and CN MODERN

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

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

Diversification Opportunities for Reliance Steel and CN MODERN

0.48

Correlation Coefficient

Reliance Steel  CN MODERN

Very weak diversification

The 3 months correlation between Reliance and 07M is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and CN MODERN DAIRY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CN MODERN DAIRY and Reliance Steel 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 Reliance Steel Aluminum are associated (or correlated) with CN MODERN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CN MODERN DAIRY has no effect on the direction of Reliance Steel i.e., Reliance Steel and CN MODERN go up and down completely randomly.

Pair Corralation between Reliance Steel and CN MODERN

Assuming the 90 days horizon Reliance Steel is expected to generate 1.37 times less return on investment than CN MODERN. But when comparing it to its historical volatility, Reliance Steel Aluminum is 1.65 times less risky than CN MODERN. It trades about 0.13 of its potential returns per unit of risk. CN MODERN DAIRY is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  7.50  in CN MODERN DAIRY on September 3, 2024 and sell it today you would earn a total of  1.75  from holding CN MODERN DAIRY or generate 23.33% return on investment over 90 days.

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

Reliance Steel Aluminum  vs.  CN MODERN DAIRY

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 fragile basic indicators, Reliance Steel reported solid returns over the last few months and may actually be approaching a breakup point.

CN MODERN DAIRY

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CN MODERN DAIRY are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady primary indicators, CN MODERN exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Steel and CN MODERN

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

The idea behind Reliance Steel Aluminum and CN MODERN DAIRY 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.