Correlation Between SOFI TECHNOLOGIES and Sims Metal

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

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

Diversification Opportunities for SOFI TECHNOLOGIES and Sims Metal

-0.36

Correlation Coefficient

SOFI TECHNOLOGIES  Sims Metal

Very good diversification

The 3 months correlation between SOFI and Sims is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding SOFI TECHNOLOGIES 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 SOFI TECHNOLOGIES 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 SOFI TECHNOLOGIES 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 SOFI TECHNOLOGIES i.e., SOFI TECHNOLOGIES and Sims Metal go up and down completely randomly.

Pair Corralation between SOFI TECHNOLOGIES and Sims Metal

Assuming the 90 days horizon SOFI TECHNOLOGIES is expected to under-perform the Sims Metal. In addition to that, SOFI TECHNOLOGIES is 2.21 times more volatile than Sims Metal Management. It trades about -0.08 of its total potential returns per unit of risk. Sims Metal Management is currently generating about 0.22 per unit of volatility. If you would invest  700.00  in Sims Metal Management on December 24, 2024 and sell it today you would earn a total of  180.00  from holding Sims Metal Management or generate 25.71% return on investment over 90 days.

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

SOFI TECHNOLOGIES  vs.  Sims Metal Management

SOFI TECHNOLOGIES

Risk-Adjusted Performance

Very Weak

Over the last 90 days SOFI TECHNOLOGIES has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 fragile basic indicators, Sims Metal reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SOFI TECHNOLOGIES and Sims Metal

The main advantage of trading using opposite SOFI TECHNOLOGIES and Sims Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOFI TECHNOLOGIES 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 SOFI TECHNOLOGIES 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.