Correlation Between SIMS METAL and Canadian Utilities

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

Diversification Opportunities for SIMS METAL and Canadian Utilities

0.34

Correlation Coefficient

SIMS METAL  Canadian Utilities

Weak diversification

The 3 months correlation between SIMS and Canadian is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Canadian Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities 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 Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of SIMS METAL i.e., SIMS METAL and Canadian Utilities go up and down completely randomly.

Pair Corralation between SIMS METAL and Canadian Utilities

Assuming the 90 days trading horizon SIMS METAL MGT is expected to generate 2.32 times more return on investment than Canadian Utilities. However, SIMS METAL is 2.32 times more volatile than Canadian Utilities Limited. It trades about 0.1 of its potential returns per unit of risk. Canadian Utilities Limited is currently generating about 0.12 per unit of risk. If you would invest  612.00  in SIMS METAL MGT on October 20, 2024 and sell it today you would earn a total of  198.00  from holding SIMS METAL MGT or generate 32.35% 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.  Canadian Utilities Limited

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 rather sound primary indicators, SIMS METAL is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Canadian Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Canadian Utilities Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SIMS METAL and Canadian Utilities

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

The idea behind SIMS METAL MGT and Canadian Utilities Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.