Correlation Between SIMS METAL and East Japan

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

Diversification Opportunities for SIMS METAL and East Japan

0.47

Correlation Coefficient

SIMS METAL  East Japan

Very weak diversification

The 3 months correlation between SIMS and East is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and East Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on East Japan Railway 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 East Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of East Japan Railway has no effect on the direction of SIMS METAL i.e., SIMS METAL and East Japan go up and down completely randomly.

Pair Corralation between SIMS METAL and East Japan

Assuming the 90 days trading horizon SIMS METAL MGT is expected to under-perform the East Japan. In addition to that, SIMS METAL is 1.06 times more volatile than East Japan Railway. It trades about -0.28 of its total potential returns per unit of risk. East Japan Railway is currently generating about -0.16 per unit of volatility. If you would invest  1,780  in East Japan Railway on September 25, 2024 and sell it today you would lose (103.00) from holding East Japan Railway or give up 5.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

SIMS METAL MGT  vs.  East Japan Railway

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.

East Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Japan Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, East Japan 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 East Japan

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

The idea behind SIMS METAL MGT and East Japan Railway 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.