Correlation Between SIMS METAL and Microchip Technology

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

Diversification Opportunities for SIMS METAL and Microchip Technology

0.14

Correlation Coefficient

SIMS METAL  Microchip Technology

Average diversification

The 3 months correlation between SIMS and Microchip is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Microchip Technology Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microchip Technology 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 Microchip Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microchip Technology has no effect on the direction of SIMS METAL i.e., SIMS METAL and Microchip Technology go up and down completely randomly.

Pair Corralation between SIMS METAL and Microchip Technology

Assuming the 90 days trading horizon SIMS METAL MGT is expected to generate 0.86 times more return on investment than Microchip Technology. However, SIMS METAL MGT is 1.17 times less risky than Microchip Technology. It trades about 0.0 of its potential returns per unit of risk. Microchip Technology Incorporated is currently generating about -0.02 per unit of risk. If you would invest  804.00  in SIMS METAL MGT on September 21, 2024 and sell it today you would lose (69.00) from holding SIMS METAL MGT or give up 8.58% of portfolio value over 90 days.

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

SIMS METAL MGT  vs.  Microchip Technology Incorpora

SIMS METAL MGT

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS METAL MGT are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, SIMS METAL is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Microchip Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microchip Technology Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with SIMS METAL and Microchip Technology

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

The idea behind SIMS METAL MGT and Microchip Technology Incorporated 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.