Correlation Between SIMS METAL and AIR PRODCHEMICALS

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

Diversification Opportunities for SIMS METAL and AIR PRODCHEMICALS

0.5

Correlation Coefficient

SIMS METAL  AIR PRODCHEMICALS

Very weak diversification

The 3 months correlation between SIMS and AIR is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and AIR PRODCHEMICALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIR PRODCHEMICALS 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 AIR PRODCHEMICALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIR PRODCHEMICALS has no effect on the direction of SIMS METAL i.e., SIMS METAL and AIR PRODCHEMICALS go up and down completely randomly.

Pair Corralation between SIMS METAL and AIR PRODCHEMICALS

Assuming the 90 days trading horizon SIMS METAL MGT is expected to under-perform the AIR PRODCHEMICALS. In addition to that, SIMS METAL is 1.22 times more volatile than AIR PRODCHEMICALS. It trades about -0.02 of its total potential returns per unit of risk. AIR PRODCHEMICALS is currently generating about 0.04 per unit of volatility. If you would invest  23,599  in AIR PRODCHEMICALS on October 5, 2024 and sell it today you would earn a total of  4,131  from holding AIR PRODCHEMICALS or generate 17.5% return on investment over 90 days.

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

SIMS METAL MGT  vs.  AIR PRODCHEMICALS

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.

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SIMS METAL and AIR PRODCHEMICALS

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

The idea behind SIMS METAL MGT and AIR PRODCHEMICALS 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.