Correlation Between SIMS METAL and CGN Power

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

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

Diversification Opportunities for SIMS METAL and CGN Power

0.13

Correlation Coefficient

SIMS METAL  CGN Power

Average diversification

The 3 months correlation between SIMS and CGN is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and CGN Power Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGN Power and SIMS METAL 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 SIMS METAL MGT are associated (or correlated) with CGN Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGN Power has no effect on the direction of SIMS METAL i.e., SIMS METAL and CGN Power go up and down completely randomly.

Pair Corralation between SIMS METAL and CGN Power

Assuming the 90 days trading horizon SIMS METAL MGT is expected to under-perform the CGN Power. But the stock apears to be less risky and, when comparing its historical volatility, SIMS METAL MGT is 5.69 times less risky than CGN Power. The stock trades about -0.01 of its potential returns per unit of risk. The CGN Power Co is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  6.99  in CGN Power Co on October 4, 2024 and sell it today you would earn a total of  21.01  from holding CGN Power Co or generate 300.57% return on investment over 90 days.

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

SIMS METAL MGT  vs.  CGN Power Co

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 latest uncertain performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

CGN Power

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CGN Power Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, CGN Power reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIMS METAL and CGN Power

The main advantage of trading using opposite SIMS METAL and CGN Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SIMS METAL position performs unexpectedly, CGN Power 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 CGN Power will offset losses from the drop in CGN Power's long position.

The idea behind SIMS METAL MGT and CGN Power Co 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.