Correlation Between SIMS METAL and Aluminumof China

Can any of the company-specific risk be diversified away by investing in both SIMS METAL and Aluminumof China 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 Aluminumof China 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 Aluminum of, you can compare the effects of market volatilities on SIMS METAL and Aluminumof China 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 Aluminumof China. Check out your portfolio center. Please also check ongoing floating volatility patterns of SIMS METAL and Aluminumof China.

Diversification Opportunities for SIMS METAL and Aluminumof China

0.39

Correlation Coefficient

SIMS METAL  Aluminumof China

Weak diversification

The 3 months correlation between SIMS and Aluminumof is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Aluminum of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aluminumof China 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 Aluminumof China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aluminumof China has no effect on the direction of SIMS METAL i.e., SIMS METAL and Aluminumof China go up and down completely randomly.

Pair Corralation between SIMS METAL and Aluminumof China

Assuming the 90 days trading horizon SIMS METAL MGT is expected to under-perform the Aluminumof China. But the stock apears to be less risky and, when comparing its historical volatility, SIMS METAL MGT is 1.62 times less risky than Aluminumof China. The stock trades about -0.02 of its potential returns per unit of risk. The Aluminum of is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  30.00  in Aluminum of on October 5, 2024 and sell it today you would earn a total of  24.00  from holding Aluminum of or generate 80.0% return on investment over 90 days.

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

SIMS METAL MGT  vs.  Aluminum of

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 fragile 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.

Aluminumof China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aluminum of 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 SIMS METAL and Aluminumof China

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

The idea behind SIMS METAL MGT and Aluminum of 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.

Check out your portfolio center.

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.