Correlation Between RELIANCE STEEL and Lamar Advertising

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

By analyzing existing cross correlation between RELIANCE STEEL AL and Lamar Advertising, you can compare the effects of market volatilities on RELIANCE STEEL and Lamar Advertising 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 Lamar Advertising. Check out your portfolio center. Please also check ongoing floating volatility patterns of RELIANCE STEEL and Lamar Advertising.

Diversification Opportunities for RELIANCE STEEL and Lamar Advertising

0.59

Correlation Coefficient

RELIANCE STEEL  Lamar Advertising

Very weak diversification

The 3 months correlation between RELIANCE and Lamar is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding RELIANCE STEEL AL and Lamar Advertising in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lamar Advertising 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 AL are associated (or correlated) with Lamar Advertising. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lamar Advertising has no effect on the direction of RELIANCE STEEL i.e., RELIANCE STEEL and Lamar Advertising go up and down completely randomly.

Pair Corralation between RELIANCE STEEL and Lamar Advertising

Assuming the 90 days trading horizon RELIANCE STEEL AL is expected to generate 1.19 times more return on investment than Lamar Advertising. However, RELIANCE STEEL is 1.19 times more volatile than Lamar Advertising. It trades about 0.18 of its potential returns per unit of risk. Lamar Advertising is currently generating about 0.1 per unit of risk. If you would invest  24,480  in RELIANCE STEEL AL on September 12, 2024 and sell it today you would earn a total of  4,470  from holding RELIANCE STEEL AL or generate 18.26% return on investment over 90 days.

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

RELIANCE STEEL AL  vs.  Lamar Advertising

RELIANCE STEEL AL

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RELIANCE STEEL AL are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, RELIANCE STEEL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lamar Advertising

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lamar Advertising are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Lamar Advertising may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with RELIANCE STEEL and Lamar Advertising

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

The idea behind RELIANCE STEEL AL and Lamar Advertising 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.