Correlation Between RELIANCE STEEL and CosmoSteel Holdings

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

Diversification Opportunities for RELIANCE STEEL and CosmoSteel Holdings

-0.27

Correlation Coefficient

RELIANCE STEEL  CosmoSteel Holdings

Very good diversification

The 3 months correlation between RELIANCE and CosmoSteel is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding RELIANCE STEEL AL and CosmoSteel Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CosmoSteel Holdings 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 CosmoSteel Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CosmoSteel Holdings has no effect on the direction of RELIANCE STEEL i.e., RELIANCE STEEL and CosmoSteel Holdings go up and down completely randomly.

Pair Corralation between RELIANCE STEEL and CosmoSteel Holdings

Assuming the 90 days trading horizon RELIANCE STEEL AL is expected to under-perform the CosmoSteel Holdings. But the stock apears to be less risky and, when comparing its historical volatility, RELIANCE STEEL AL is 3.21 times less risky than CosmoSteel Holdings. The stock trades about -0.56 of its potential returns per unit of risk. The CosmoSteel Holdings Limited is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  5.90  in CosmoSteel Holdings Limited on September 25, 2024 and sell it today you would earn a total of  0.85  from holding CosmoSteel Holdings Limited or generate 14.41% return on investment over 90 days.

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

RELIANCE STEEL AL  vs.  CosmoSteel Holdings Limited

RELIANCE STEEL AL

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RELIANCE STEEL AL are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, RELIANCE STEEL is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

CosmoSteel Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CosmoSteel Holdings Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CosmoSteel Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with RELIANCE STEEL and CosmoSteel Holdings

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

The idea behind RELIANCE STEEL AL and CosmoSteel Holdings Limited 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.