Correlation Between Reliance Steel and Applied Materials

Can any of the company-specific risk be diversified away by investing in both Reliance Steel and Applied Materials 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 Applied Materials 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 Applied Materials, you can compare the effects of market volatilities on Reliance Steel and Applied Materials 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 Applied Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Steel and Applied Materials.

Diversification Opportunities for Reliance Steel and Applied Materials

-0.45

Correlation Coefficient

Reliance Steel  Applied Materials

Very good diversification

The 3 months correlation between Reliance and Applied is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Applied Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Materials 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 Applied Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Materials has no effect on the direction of Reliance Steel i.e., Reliance Steel and Applied Materials go up and down completely randomly.

Pair Corralation between Reliance Steel and Applied Materials

Assuming the 90 days horizon Reliance Steel Aluminum is expected to under-perform the Applied Materials. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Steel Aluminum is 2.35 times less risky than Applied Materials. The stock trades about -0.05 of its potential returns per unit of risk. The Applied Materials is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  16,073  in Applied Materials on September 16, 2024 and sell it today you would earn a total of  17.00  from holding Applied Materials or generate 0.11% return on investment over 90 days.

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

Reliance Steel Aluminum  vs.  Applied Materials

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.

Applied Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Applied Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Applied Materials is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Reliance Steel and Applied Materials

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

The idea behind Reliance Steel Aluminum and Applied Materials 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.