Correlation Between NAGOYA RAILROAD and Sims Metal

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

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

Diversification Opportunities for NAGOYA RAILROAD and Sims Metal

0.6

Correlation Coefficient

NAGOYA RAILROAD  Sims Metal

Poor diversification

The 3 months correlation between NAGOYA and Sims is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding NAGOYA RAILROAD 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 NAGOYA RAILROAD 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 NAGOYA RAILROAD 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 NAGOYA RAILROAD i.e., NAGOYA RAILROAD and Sims Metal go up and down completely randomly.

Pair Corralation between NAGOYA RAILROAD and Sims Metal

Assuming the 90 days horizon NAGOYA RAILROAD is expected to generate 3.75 times less return on investment than Sims Metal. But when comparing it to its historical volatility, NAGOYA RAILROAD is 1.46 times less risky than Sims Metal. It trades about 0.08 of its potential returns per unit of risk. Sims Metal Management is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  710.00  in Sims Metal Management on December 20, 2024 and sell it today you would earn a total of  175.00  from holding Sims Metal Management or generate 24.65% return on investment over 90 days.

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

NAGOYA RAILROAD  vs.  Sims Metal Management

NAGOYA RAILROAD

Risk-Adjusted Performance

Modest

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

Sims Metal Management

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sims Metal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NAGOYA RAILROAD and Sims Metal

The main advantage of trading using opposite NAGOYA RAILROAD and Sims Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NAGOYA RAILROAD 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 NAGOYA RAILROAD 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.