Correlation Between Reliance Steel and Tokyo Electron

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

Diversification Opportunities for Reliance Steel and Tokyo Electron

-0.37

Correlation Coefficient

Reliance Steel  Tokyo Electron

Very good diversification

The 3 months correlation between Reliance and Tokyo is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Reliance Steel Aluminum and Tokyo Electron Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyo Electron 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 Tokyo Electron. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyo Electron has no effect on the direction of Reliance Steel i.e., Reliance Steel and Tokyo Electron go up and down completely randomly.

Pair Corralation between Reliance Steel and Tokyo Electron

Assuming the 90 days horizon Reliance Steel Aluminum is expected to under-perform the Tokyo Electron. But the stock apears to be less risky and, when comparing its historical volatility, Reliance Steel Aluminum is 3.11 times less risky than Tokyo Electron. The stock trades about -0.08 of its potential returns per unit of risk. The Tokyo Electron Limited is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  13,395  in Tokyo Electron Limited on September 18, 2024 and sell it today you would earn a total of  1,525  from holding Tokyo Electron Limited or generate 11.38% return on investment over 90 days.

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

Reliance Steel Aluminum  vs.  Tokyo Electron Limited

Reliance Steel Aluminum

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Reliance Steel Aluminum are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Reliance Steel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tokyo Electron

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyo Electron Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Tokyo Electron is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Reliance Steel and Tokyo Electron

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

The idea behind Reliance Steel Aluminum and Tokyo Electron Limited 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.