Correlation Between Virtu Financial and Sims Metal

Can any of the company-specific risk be diversified away by investing in both Virtu Financial and Sims Metal 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 Virtu Financial and Sims Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Virtu Financial and Sims Metal Management, you can compare the effects of market volatilities on Virtu Financial and Sims Metal 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 Virtu Financial with a short position of Sims Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Virtu Financial and Sims Metal.

Diversification Opportunities for Virtu Financial and Sims Metal

-0.23

Correlation Coefficient

Virtu Financial  Sims Metal

Very good diversification

The 3 months correlation between Virtu and Sims is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Virtu Financial and Sims Metal Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sims Metal Management and Virtu Financial 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 Virtu Financial are associated (or correlated) with Sims Metal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sims Metal Management has no effect on the direction of Virtu Financial i.e., Virtu Financial and Sims Metal go up and down completely randomly.

Pair Corralation between Virtu Financial and Sims Metal

Assuming the 90 days horizon Virtu Financial is expected to generate 2.07 times less return on investment than Sims Metal. But when comparing it to its historical volatility, Virtu Financial is 1.05 times less risky than Sims Metal. It trades about 0.19 of its potential returns per unit of risk. Sims Metal Management is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  700.00  in Sims Metal Management on October 23, 2024 and sell it today you would earn a total of  90.00  from holding Sims Metal Management or generate 12.86% return on investment over 90 days.

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

Virtu Financial  vs.  Sims Metal Management

Virtu Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Virtu Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Virtu Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Sims Metal Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sims Metal Management has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sims Metal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Virtu Financial and Sims Metal

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

The idea behind Virtu Financial and Sims Metal Management 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.