Correlation Between Reliance Steel and SM Energy
Can any of the company-specific risk be diversified away by investing in both Reliance Steel and SM Energy 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 SM Energy 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 SM Energy Co, you can compare the effects of market volatilities on Reliance Steel and SM Energy 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 SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Steel and SM Energy.
Diversification Opportunities for Reliance Steel and SM Energy
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Reliance and SM Energy is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy 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 SM Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Energy has no effect on the direction of Reliance Steel i.e., Reliance Steel and SM Energy go up and down completely randomly.
Pair Corralation between Reliance Steel and SM Energy
Allowing for the 90-day total investment horizon Reliance Steel is expected to generate 1.67 times less return on investment than SM Energy. But when comparing it to its historical volatility, Reliance Steel Aluminum is 1.44 times less risky than SM Energy. It trades about 0.1 of its potential returns per unit of risk. SM Energy Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 2,840 in SM Energy Co on January 19, 2024 and sell it today you would earn a total of 1,964 from holding SM Energy Co or generate 69.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Reliance Steel Aluminum vs. SM Energy Co
Performance |
| Timeline |
| Reliance Steel Aluminum |
| SM Energy |
Reliance Steel and SM Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Reliance Steel and SM Energy
The main advantage of trading using opposite Reliance Steel and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Steel position performs unexpectedly, SM Energy 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 SM Energy will offset losses from the drop in SM Energy'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 |
| SM Energy vs. Vital Energy | SM Energy vs. Permian Resources | SM Energy vs. Matador Resources | SM Energy vs. Obsidian Energy |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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