Correlation Between Reliance Steel and Home Depot

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

Diversification Opportunities for Reliance Steel and Home Depot

0.72

Correlation Coefficient

Reliance Steel  Home Depot

Poor diversification

The 3 months correlation between Reliance and Home is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Reliance Steel i.e., Reliance Steel and Home Depot go up and down completely randomly.

Pair Corralation between Reliance Steel and Home Depot

Assuming the 90 days horizon Reliance Steel Aluminum is expected to generate 1.43 times more return on investment than Home Depot. However, Reliance Steel is 1.43 times more volatile than The Home Depot. It trades about 0.06 of its potential returns per unit of risk. The Home Depot is currently generating about 0.06 per unit of risk. If you would invest  19,632  in Reliance Steel Aluminum on August 18, 2024 and sell it today you would earn a total of  9,968  from holding Reliance Steel Aluminum or generate 50.77% return on investment over 90 days.

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

Reliance Steel Aluminum  vs.  The Home Depot

Reliance Steel Aluminum

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 9 (%) 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.

Home Depot

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Home Depot are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward indicators, Home Depot unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reliance Steel and Home Depot

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

The idea behind Reliance Steel Aluminum and The Home Depot 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 Stocks Directory module to find actively traded stocks across global markets.