Correlation Between Reliance Steel and Century Aluminum

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

Diversification Opportunities for Reliance Steel and Century Aluminum

0.2

Correlation Coefficient

Reliance Steel  Century Aluminum

Modest diversification

The 3 months correlation between Reliance and Century is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum 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 Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of Reliance Steel i.e., Reliance Steel and Century Aluminum go up and down completely randomly.

Pair Corralation between Reliance Steel and Century Aluminum

Allowing for the 90-day total investment horizon Reliance Steel is expected to generate 19.93 times less return on investment than Century Aluminum. But when comparing it to its historical volatility, Reliance Steel Aluminum is 1.51 times less risky than Century Aluminum. It trades about 0.02 of its potential returns per unit of risk. Century Aluminum is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,034  in Century Aluminum on February 3, 2024 and sell it today you would earn a total of  594.00  from holding Century Aluminum or generate 57.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Reliance Steel Aluminum  vs.  Century Aluminum

Reliance Steel Aluminum

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Reliance Steel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Century Aluminum

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Steel and Century Aluminum

The main advantage of trading using opposite Reliance Steel and Century Aluminum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reliance Steel position performs unexpectedly, Century Aluminum 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 Century Aluminum will offset losses from the drop in Century Aluminum's long position.

The idea behind Reliance Steel Aluminum and Century 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.