Correlation Between Kaiser Aluminum and Reliance Steel
Can any of the company-specific risk be diversified away by investing in both Kaiser Aluminum 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 Kaiser Aluminum and Reliance Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Kaiser Aluminum and Reliance Steel Aluminum, you can compare the effects of market volatilities on Kaiser Aluminum 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 Kaiser Aluminum with a short position of Reliance Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kaiser Aluminum and Reliance Steel.
Diversification Opportunities for Kaiser Aluminum and Reliance Steel
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Kaiser and Reliance is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Kaiser Aluminum 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 Kaiser Aluminum 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 Kaiser Aluminum 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 Kaiser Aluminum i.e., Kaiser Aluminum and Reliance Steel go up and down completely randomly.
Pair Corralation between Kaiser Aluminum and Reliance Steel
Given the investment horizon of 90 days Kaiser Aluminum is expected to generate 1.96 times more return on investment than Reliance Steel. However, Kaiser Aluminum is 1.96 times more volatile than Reliance Steel Aluminum. It trades about 0.21 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about -0.22 per unit of risk. If you would invest 8,406 in Kaiser Aluminum on January 24, 2024 and sell it today you would earn a total of 576.00 from holding Kaiser Aluminum or generate 6.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Kaiser Aluminum vs. Reliance Steel Aluminum
Performance |
| Timeline |
| Kaiser Aluminum |
| Reliance Steel Aluminum |
Kaiser Aluminum and Reliance Steel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Kaiser Aluminum and Reliance Steel
The main advantage of trading using opposite Kaiser Aluminum and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kaiser Aluminum 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 Kaiser Aluminum 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.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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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