Correlation Between KAUFMAN ET and SIMS METAL

Can any of the company-specific risk be diversified away by investing in both KAUFMAN ET 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 KAUFMAN ET and SIMS METAL into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KAUFMAN ET BROAD and SIMS METAL MGT, you can compare the effects of market volatilities on KAUFMAN ET 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 KAUFMAN ET with a short position of SIMS METAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of KAUFMAN ET and SIMS METAL.

Diversification Opportunities for KAUFMAN ET and SIMS METAL

0.29

Correlation Coefficient

KAUFMAN ET  SIMS METAL

Modest diversification

The 3 months correlation between KAUFMAN and SIMS is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding KAUFMAN ET BROAD and SIMS METAL MGT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMS METAL MGT and KAUFMAN ET 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 KAUFMAN ET BROAD 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 MGT has no effect on the direction of KAUFMAN ET i.e., KAUFMAN ET and SIMS METAL go up and down completely randomly.

Pair Corralation between KAUFMAN ET and SIMS METAL

Assuming the 90 days trading horizon KAUFMAN ET BROAD is expected to generate 0.93 times more return on investment than SIMS METAL. However, KAUFMAN ET BROAD is 1.08 times less risky than SIMS METAL. It trades about -0.06 of its potential returns per unit of risk. SIMS METAL MGT is currently generating about -0.28 per unit of risk. If you would invest  3,265  in KAUFMAN ET BROAD on September 25, 2024 and sell it today you would lose (80.00) from holding KAUFMAN ET BROAD or give up 2.45% of portfolio value over 90 days.

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

KAUFMAN ET BROAD  vs.  SIMS METAL MGT

KAUFMAN ET BROAD

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KAUFMAN ET BROAD are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, KAUFMAN ET is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SIMS METAL MGT

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days SIMS METAL MGT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, SIMS METAL is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with KAUFMAN ET and SIMS METAL

The main advantage of trading using opposite KAUFMAN ET and SIMS METAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KAUFMAN ET 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 KAUFMAN ET BROAD and SIMS METAL MGT 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.

Check out your portfolio center.

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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.