Correlation Between VITEC SOFTWARE and Sims Metal

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

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

Diversification Opportunities for VITEC SOFTWARE and Sims Metal

-0.48

Correlation Coefficient

VITEC SOFTWARE  Sims Metal

Very good diversification

The 3 months correlation between VITEC and Sims is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding VITEC SOFTWARE GROUP 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 VITEC SOFTWARE 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 VITEC SOFTWARE GROUP 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 VITEC SOFTWARE i.e., VITEC SOFTWARE and Sims Metal go up and down completely randomly.

Pair Corralation between VITEC SOFTWARE and Sims Metal

Assuming the 90 days horizon VITEC SOFTWARE is expected to generate 3.38 times less return on investment than Sims Metal. In addition to that, VITEC SOFTWARE is 1.55 times more volatile than Sims Metal Management. It trades about 0.07 of its total potential returns per unit of risk. Sims Metal Management is currently generating about 0.38 per unit of volatility. If you would invest  700.00  in Sims Metal Management on October 24, 2024 and sell it today you would earn a total of  100.00  from holding Sims Metal Management or generate 14.29% return on investment over 90 days.

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

VITEC SOFTWARE GROUP  vs.  Sims Metal Management

VITEC SOFTWARE GROUP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VITEC SOFTWARE GROUP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, VITEC SOFTWARE 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 VITEC SOFTWARE and Sims Metal

The main advantage of trading using opposite VITEC SOFTWARE and Sims Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VITEC SOFTWARE 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 VITEC SOFTWARE GROUP 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.