Correlation Between Outokumpu Oyj and Reliance Steel

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

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

Diversification Opportunities for Outokumpu Oyj and Reliance Steel

-0.65

Correlation Coefficient

Outokumpu Oyj  Reliance Steel

Excellent diversification

The 3 months correlation between Outokumpu and Reliance is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Outokumpu Oyj ADR 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 Outokumpu Oyj 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 Outokumpu Oyj ADR 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 Outokumpu Oyj i.e., Outokumpu Oyj and Reliance Steel go up and down completely randomly.

Pair Corralation between Outokumpu Oyj and Reliance Steel

Assuming the 90 days horizon Outokumpu Oyj ADR is expected to under-perform the Reliance Steel. But the pink sheet apears to be less risky and, when comparing its historical volatility, Outokumpu Oyj ADR is 1.86 times less risky than Reliance Steel. The pink sheet trades about -0.14 of its potential returns per unit of risk. The Reliance Steel Aluminum is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  28,080  in Reliance Steel Aluminum on August 27, 2024 and sell it today you would earn a total of  3,847  from holding Reliance Steel Aluminum or generate 13.7% return on investment over 90 days.

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

Outokumpu Oyj ADR  vs.  Reliance Steel Aluminum

Outokumpu Oyj ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Outokumpu Oyj ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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. In spite of comparatively unfluctuating basic indicators, Reliance Steel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Outokumpu Oyj and Reliance Steel

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