Correlation Between Reliance Steel and Carpenter Technology
Can any of the company-specific risk be diversified away by investing in both Reliance Steel and Carpenter Technology 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 Carpenter Technology 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 Carpenter Technology, you can compare the effects of market volatilities on Reliance Steel and Carpenter Technology 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 Carpenter Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Steel and Carpenter Technology.
Diversification Opportunities for Reliance Steel and Carpenter Technology
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Reliance and Carpenter is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Carpenter Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carpenter Technology 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 Carpenter Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carpenter Technology has no effect on the direction of Reliance Steel i.e., Reliance Steel and Carpenter Technology go up and down completely randomly.
Pair Corralation between Reliance Steel and Carpenter Technology
Allowing for the 90-day total investment horizon Reliance Steel Aluminum is expected to under-perform the Carpenter Technology. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Steel Aluminum is 2.32 times less risky than Carpenter Technology. The stock trades about -0.3 of its potential returns per unit of risk. The Carpenter Technology is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 6,830 in Carpenter Technology on January 26, 2024 and sell it today you would earn a total of 1,210 from holding Carpenter Technology or generate 17.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Reliance Steel Aluminum vs. Carpenter Technology
Performance |
| Timeline |
| Reliance Steel Aluminum |
| Carpenter Technology |
Reliance Steel and Carpenter Technology Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Reliance Steel and Carpenter Technology
The main advantage of trading using opposite Reliance Steel and Carpenter Technology positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Steel position performs unexpectedly, Carpenter Technology 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 Carpenter Technology will offset losses from the drop in Carpenter Technology's long position.| Reliance Steel vs. Universal Stainless Alloy | Reliance Steel vs. Outokumpu Oyj ADR | Reliance Steel vs. Usinas Siderurgicas de | Reliance Steel vs. POSCO Holdings |
| Carpenter Technology vs. Insteel Industries | Carpenter Technology vs. Mayville Engineering Co | Carpenter Technology vs. Gulf Island Fabrication | Carpenter Technology vs. ESAB Corp |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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