Correlation Between Volkswagen and Reliance Steel

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

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

Diversification Opportunities for Volkswagen and Reliance Steel

-0.88

Correlation Coefficient

Volkswagen  Reliance Steel

Pay attention - limited upside

The 3 months correlation between Volkswagen and Reliance is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Reliance Steel Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Steel Aluminum and Volkswagen 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 Volkswagen AG are associated (or correlated) with Reliance Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Steel Aluminum has no effect on the direction of Volkswagen i.e., Volkswagen and Reliance Steel go up and down completely randomly.

Pair Corralation between Volkswagen and Reliance Steel

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Reliance Steel. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.23 times less risky than Reliance Steel. The stock trades about -0.16 of its potential returns per unit of risk. The Reliance Steel Aluminum is currently generating about 0.18 of returns per unit of risk over similar time horizon. 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	Significant
Accuracy	98.46%
Values	Daily Returns

Volkswagen AG  vs.  Reliance Steel Aluminum

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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.

Pair Trading with Volkswagen and Reliance Steel

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

The idea behind Volkswagen AG and Reliance Steel Aluminum 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.