Correlation Between Reliance Steel and Friedman Industries
Can any of the company-specific risk be diversified away by investing in both Reliance Steel and Friedman Industries 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 Friedman Industries 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 Friedman Industries, you can compare the effects of market volatilities on Reliance Steel and Friedman Industries 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 Friedman Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Steel and Friedman Industries.
Diversification Opportunities for Reliance Steel and Friedman Industries
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Reliance and Friedman is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Friedman Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Friedman Industries 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 Friedman Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Friedman Industries has no effect on the direction of Reliance Steel i.e., Reliance Steel and Friedman Industries go up and down completely randomly.
Pair Corralation between Reliance Steel and Friedman Industries
Allowing for the 90-day total investment horizon Reliance Steel Aluminum is expected to under-perform the Friedman Industries. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Steel Aluminum is 1.6 times less risky than Friedman Industries. The stock trades about -0.21 of its potential returns per unit of risk. The Friedman Industries is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,888 in Friedman Industries on January 24, 2024 and sell it today you would earn a total of 13.00 from holding Friedman Industries or generate 0.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Reliance Steel Aluminum vs. Friedman Industries
Performance |
| Timeline |
| Reliance Steel Aluminum |
| Friedman Industries |
Reliance Steel and Friedman Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Reliance Steel and Friedman Industries
The main advantage of trading using opposite Reliance Steel and Friedman Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Steel position performs unexpectedly, Friedman Industries 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 Friedman Industries will offset losses from the drop in Friedman Industries' long position.The idea behind Reliance Steel Aluminum and Friedman Industries 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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