Correlation Between SIMS METAL and Avis Budget

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

Diversification Opportunities for SIMS METAL and Avis Budget

0.22

Correlation Coefficient

SIMS METAL  Avis Budget

Modest diversification

The 3 months correlation between SIMS and Avis is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Avis Budget Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avis Budget Group 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 Avis Budget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avis Budget Group has no effect on the direction of SIMS METAL i.e., SIMS METAL and Avis Budget go up and down completely randomly.

Pair Corralation between SIMS METAL and Avis Budget

Assuming the 90 days trading horizon SIMS METAL MGT is expected to generate 0.63 times more return on investment than Avis Budget. However, SIMS METAL MGT is 1.59 times less risky than Avis Budget. It trades about -0.59 of its potential returns per unit of risk. Avis Budget Group is currently generating about -0.66 per unit of risk. If you would invest  815.00  in SIMS METAL MGT on October 1, 2024 and sell it today you would lose (115.00) from holding SIMS METAL MGT or give up 14.11% of portfolio value over 90 days.

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

SIMS METAL MGT  vs.  Avis Budget Group

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.

Avis Budget Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avis Budget Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Avis Budget is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SIMS METAL and Avis Budget

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

The idea behind SIMS METAL MGT and Avis Budget Group 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.