Correlation Between BII Railway and Sims Metal

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

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

Diversification Opportunities for BII Railway and Sims Metal

0.54

Correlation Coefficient

BII Railway  Sims Metal

Very weak diversification

The 3 months correlation between BII and Sims is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding BII Railway Transportation 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 BII Railway 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 BII Railway Transportation 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 BII Railway i.e., BII Railway and Sims Metal go up and down completely randomly.

Pair Corralation between BII Railway and Sims Metal

Assuming the 90 days horizon BII Railway is expected to generate 4.11 times less return on investment than Sims Metal. But when comparing it to its historical volatility, BII Railway Transportation is 1.14 times less risky than Sims Metal. It trades about 0.06 of its potential returns per unit of risk. Sims Metal Management is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  695.00  in Sims Metal Management on December 28, 2024 and sell it today you would earn a total of  185.00  from holding Sims Metal Management or generate 26.62% return on investment over 90 days.

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

BII Railway Transportation  vs.  Sims Metal Management

BII Railway Transpor

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BII Railway Transportation are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, BII Railway 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

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 17 (%) 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 BII Railway and Sims Metal

The main advantage of trading using opposite BII Railway and Sims Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BII Railway 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 BII Railway Transportation 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.