Correlation Between AIR PRODCHEMICALS and SIMS METAL

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

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

Diversification Opportunities for AIR PRODCHEMICALS and SIMS METAL

0.52

Correlation Coefficient

AIR PRODCHEMICALS  SIMS METAL

Very weak diversification

The 3 months correlation between AIR and SIMS is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding AIR PRODCHEMICALS 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 AIR PRODCHEMICALS 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 AIR PRODCHEMICALS 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 AIR PRODCHEMICALS i.e., AIR PRODCHEMICALS and SIMS METAL go up and down completely randomly.

Pair Corralation between AIR PRODCHEMICALS and SIMS METAL

Assuming the 90 days trading horizon AIR PRODCHEMICALS is expected to generate 1.26 times less return on investment than SIMS METAL. But when comparing it to its historical volatility, AIR PRODCHEMICALS is 1.54 times less risky than SIMS METAL. It trades about 0.12 of its potential returns per unit of risk. SIMS METAL MGT is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  612.00  in SIMS METAL MGT on October 20, 2024 and sell it today you would earn a total of  198.00  from holding SIMS METAL MGT or generate 32.35% return on investment over 90 days.

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

AIR PRODCHEMICALS  vs.  SIMS METAL MGT

AIR PRODCHEMICALS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AIR PRODCHEMICALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, AIR PRODCHEMICALS is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

SIMS METAL MGT

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SIMS METAL MGT has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, SIMS METAL is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with AIR PRODCHEMICALS and SIMS METAL

The main advantage of trading using opposite AIR PRODCHEMICALS and SIMS METAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AIR PRODCHEMICALS 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 AIR PRODCHEMICALS 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.