Correlation Between BP Prudhoe and Reliance Steel

Can any of the company-specific risk be diversified away by investing in both BP Prudhoe 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 BP Prudhoe and Reliance Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BP Prudhoe Bay and Reliance Steel Aluminum, you can compare the effects of market volatilities on BP Prudhoe 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 BP Prudhoe with a short position of Reliance Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Prudhoe and Reliance Steel.

Diversification Opportunities for BP Prudhoe and Reliance Steel

-0.37

Correlation Coefficient

BP Prudhoe  Reliance Steel

Very good diversification

The 3 months correlation between BMI and Reliance is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding BP Prudhoe Bay 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 BP Prudhoe 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 BP Prudhoe Bay 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 BP Prudhoe i.e., BP Prudhoe and Reliance Steel go up and down completely randomly.

Pair Corralation between BP Prudhoe and Reliance Steel

Assuming the 90 days horizon BP Prudhoe Bay is expected to under-perform the Reliance Steel. In addition to that, BP Prudhoe is 7.93 times more volatile than Reliance Steel Aluminum. It trades about -0.21 of its total potential returns per unit of risk. Reliance Steel Aluminum is currently generating about -0.08 per unit of volatility. If you would invest  29,261  in Reliance Steel Aluminum on September 18, 2024 and sell it today you would lose (501.00) from holding Reliance Steel Aluminum or give up 1.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

BP Prudhoe Bay  vs.  Reliance Steel Aluminum

BP Prudhoe Bay

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP Prudhoe Bay has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Reliance Steel Aluminum

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Reliance Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BP Prudhoe and Reliance Steel

The main advantage of trading using opposite BP Prudhoe and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP Prudhoe 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 BP Prudhoe Bay 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.

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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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.