Correlation Between Reliance Steel and Allegheny Technologies

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Can any of the company-specific risk be diversified away by investing in both Reliance Steel and Allegheny Technologies 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 Allegheny Technologies 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 Allegheny Technologies Incorporated, you can compare the effects of market volatilities on Reliance Steel and Allegheny Technologies 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 Allegheny Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Reliance Steel and Allegheny Technologies.

Diversification Opportunities for Reliance Steel and Allegheny Technologies

0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Reliance and Allegheny is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Allegheny Technologies Incorpo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allegheny Technologies 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 Allegheny Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allegheny Technologies has no effect on the direction of Reliance Steel i.e., Reliance Steel and Allegheny Technologies go up and down completely randomly.

Pair Corralation between Reliance Steel and Allegheny Technologies

Allowing for the 90-day total investment horizon Reliance Steel is expected to generate 1.28 times less return on investment than Allegheny Technologies. But when comparing it to its historical volatility, Reliance Steel Aluminum is 1.38 times less risky than Allegheny Technologies. It trades about 0.08 of its potential returns per unit of risk. Allegheny Technologies Incorporated is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,561  in Allegheny Technologies Incorporated on December 30, 2023 and sell it today you would earn a total of  2,556  from holding Allegheny Technologies Incorporated or generate 99.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Reliance Steel Aluminum  vs.  Allegheny Technologies Incorpo

 Performance 
       Timeline  
Reliance Steel Aluminum 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Reliance Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.
Allegheny Technologies 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Allegheny Technologies Incorporated are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Allegheny Technologies demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Reliance Steel and Allegheny Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Reliance Steel and Allegheny Technologies

The main advantage of trading using opposite Reliance Steel and Allegheny Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Steel position performs unexpectedly, Allegheny Technologies 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 Allegheny Technologies will offset losses from the drop in Allegheny Technologies' long position.
The idea behind Reliance Steel Aluminum and Allegheny Technologies Incorporated 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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