Correlation Between Olympic Steel and Hawkins

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

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

Diversification Opportunities for Olympic Steel and Hawkins

0.81

Correlation Coefficient

Olympic Steel  Hawkins

Very poor diversification

The 3 months correlation between Olympic and Hawkins is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Olympic Steel and Hawkins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawkins and Olympic 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 Olympic Steel are associated (or correlated) with Hawkins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawkins has no effect on the direction of Olympic Steel i.e., Olympic Steel and Hawkins go up and down completely randomly.

Pair Corralation between Olympic Steel and Hawkins

Given the investment horizon of 90 days Olympic Steel is expected to generate 3.29 times less return on investment than Hawkins. In addition to that, Olympic Steel is 1.15 times more volatile than Hawkins. It trades about 0.03 of its total potential returns per unit of risk. Hawkins is currently generating about 0.12 per unit of volatility. If you would invest  3,844  in Hawkins on September 13, 2024 and sell it today you would earn a total of  9,857  from holding Hawkins or generate 256.43% return on investment over 90 days.

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

Olympic Steel  vs.  Hawkins

Olympic Steel

Risk-Adjusted Performance

4 of 100

Modest

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

Hawkins

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hawkins are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward-looking signals, Hawkins displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Olympic Steel and Hawkins

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

The idea behind Olympic Steel and Hawkins 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.