Correlation Between China Overseas and Sims Metal

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

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

Diversification Opportunities for China Overseas and Sims Metal

0.46

Correlation Coefficient

China Overseas  Sims Metal

Very weak diversification

The 3 months correlation between China and Sims is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding China Overseas Land 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 China Overseas 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 China Overseas Land 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 China Overseas i.e., China Overseas and Sims Metal go up and down completely randomly.

Pair Corralation between China Overseas and Sims Metal

Assuming the 90 days horizon China Overseas Land is expected to generate 1.98 times more return on investment than Sims Metal. However, China Overseas is 1.98 times more volatile than Sims Metal Management. It trades about 0.06 of its potential returns per unit of risk. Sims Metal Management is currently generating about -0.02 per unit of risk. If you would invest  76.00  in China Overseas Land on October 3, 2024 and sell it today you would earn a total of  74.00  from holding China Overseas Land or generate 97.37% return on investment over 90 days.

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

China Overseas Land  vs.  Sims Metal Management

China Overseas Land

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Overseas Land has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company 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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with China Overseas and Sims Metal

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