Correlation Between Reliance Steel and Pfizer

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

Diversification Opportunities for Reliance Steel and Pfizer

-0.66

Correlation Coefficient

Reliance Steel  Pfizer

Excellent diversification

The 3 months correlation between Reliance and Pfizer is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Pfizer Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pfizer Inc 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 Pfizer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pfizer Inc has no effect on the direction of Reliance Steel i.e., Reliance Steel and Pfizer go up and down completely randomly.

Pair Corralation between Reliance Steel and Pfizer

Assuming the 90 days horizon Reliance Steel Aluminum is expected to generate 1.38 times more return on investment than Pfizer. However, Reliance Steel is 1.38 times more volatile than Pfizer Inc. It trades about 0.18 of its potential returns per unit of risk. Pfizer Inc is currently generating about -0.01 per unit of risk. If you would invest  24,509  in Reliance Steel Aluminum on September 4, 2024 and sell it today you would earn a total of  5,941  from holding Reliance Steel Aluminum or generate 24.24% return on investment over 90 days.

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

Reliance Steel Aluminum  vs.  Pfizer Inc

Reliance Steel Aluminum

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 13 (%) 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.

Pfizer Inc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Reliance Steel and Pfizer

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

The idea behind Reliance Steel Aluminum and Pfizer Inc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.