Correlation Between Dave Busters and Sims Metal

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

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

Diversification Opportunities for Dave Busters and Sims Metal

0.59

Correlation Coefficient

Dave Busters  Sims Metal

Very weak diversification

The 3 months correlation between Dave and Sims is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Dave Busters Entertainment 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 Dave Busters 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 Dave Busters Entertainment 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 Dave Busters i.e., Dave Busters and Sims Metal go up and down completely randomly.

Pair Corralation between Dave Busters and Sims Metal

Assuming the 90 days horizon Dave Busters Entertainment is expected to generate 1.43 times more return on investment than Sims Metal. However, Dave Busters is 1.43 times more volatile than Sims Metal Management. It trades about 0.0 of its potential returns per unit of risk. Sims Metal Management is currently generating about -0.01 per unit of risk. If you would invest  3,751  in Dave Busters Entertainment on October 11, 2024 and sell it today you would lose (831.00) from holding Dave Busters Entertainment or give up 22.15% of portfolio value over 90 days.

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

Dave Busters Entertainment  vs.  Sims Metal Management

Dave Busters Enterta

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dave Busters Entertainment are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Dave Busters is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Dave Busters and Sims Metal

The main advantage of trading using opposite Dave Busters and Sims Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dave Busters 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 Dave Busters Entertainment 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.