Correlation Between SIMS METAL and JAPAN AIRLINES

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

Diversification Opportunities for SIMS METAL and JAPAN AIRLINES

-0.36

Correlation Coefficient

SIMS METAL  JAPAN AIRLINES

Very good diversification

The 3 months correlation between SIMS and JAPAN is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and JAPAN AIRLINES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JAPAN AIRLINES 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 JAPAN AIRLINES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JAPAN AIRLINES has no effect on the direction of SIMS METAL i.e., SIMS METAL and JAPAN AIRLINES go up and down completely randomly.

Pair Corralation between SIMS METAL and JAPAN AIRLINES

Assuming the 90 days trading horizon SIMS METAL MGT is expected to generate 1.82 times more return on investment than JAPAN AIRLINES. However, SIMS METAL is 1.82 times more volatile than JAPAN AIRLINES. It trades about 0.17 of its potential returns per unit of risk. JAPAN AIRLINES is currently generating about 0.08 per unit of risk. If you would invest  641.00  in SIMS METAL MGT on September 4, 2024 and sell it today you would earn a total of  174.00  from holding SIMS METAL MGT or generate 27.15% return on investment over 90 days.

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

SIMS METAL MGT  vs.  JAPAN AIRLINES

SIMS METAL MGT

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS METAL MGT are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, SIMS METAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

JAPAN AIRLINES

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JAPAN AIRLINES are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, JAPAN AIRLINES is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SIMS METAL and JAPAN AIRLINES

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

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