Correlation Between Summit Materials and SIMS METAL

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

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

Diversification Opportunities for Summit Materials and SIMS METAL

0.43

Correlation Coefficient

Summit Materials  SIMS METAL

Very weak diversification

The 3 months correlation between Summit and SIMS is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Summit Materials 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 Summit Materials 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 Summit Materials 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 Summit Materials i.e., Summit Materials and SIMS METAL go up and down completely randomly.

Pair Corralation between Summit Materials and SIMS METAL

Assuming the 90 days trading horizon Summit Materials is expected to generate 0.99 times more return on investment than SIMS METAL. However, Summit Materials is 1.01 times less risky than SIMS METAL. It trades about 0.23 of its potential returns per unit of risk. SIMS METAL MGT is currently generating about 0.13 per unit of risk. If you would invest  3,440  in Summit Materials on September 15, 2024 and sell it today you would earn a total of  1,380  from holding Summit Materials or generate 40.12% return on investment over 90 days.

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

Summit Materials  vs.  SIMS METAL MGT

Summit Materials

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Materials are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Summit Materials unveiled solid returns over the last few months and may actually be approaching a breakup point.

SIMS METAL MGT

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS METAL MGT are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, SIMS METAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Materials and SIMS METAL

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

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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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.