Correlation Between SIMS METAL and Kaiser Aluminum

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

Diversification Opportunities for SIMS METAL and Kaiser Aluminum

0.23

Correlation Coefficient

SIMS METAL  Kaiser Aluminum

Modest diversification

The 3 months correlation between SIMS and Kaiser is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum 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 Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of SIMS METAL i.e., SIMS METAL and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between SIMS METAL and Kaiser Aluminum

Assuming the 90 days trading horizon SIMS METAL MGT is expected to generate 1.16 times more return on investment than Kaiser Aluminum. However, SIMS METAL is 1.16 times more volatile than Kaiser Aluminum. It trades about -0.28 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about -0.5 per unit of risk. If you would invest  785.00  in SIMS METAL MGT on September 25, 2024 and sell it today you would lose (80.00) from holding SIMS METAL MGT or give up 10.19% 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.  Kaiser Aluminum

SIMS METAL MGT

Risk-Adjusted Performance

0 of 100

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.

Kaiser Aluminum

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Kaiser Aluminum may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SIMS METAL and Kaiser Aluminum

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

The idea behind SIMS METAL MGT and Kaiser Aluminum 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.