Correlation Between SIMS METAL and Mitsubishi Materials

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

Diversification Opportunities for SIMS METAL and Mitsubishi Materials

0.68

Correlation Coefficient

SIMS METAL  Mitsubishi Materials

Poor diversification

The 3 months correlation between SIMS and Mitsubishi is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Mitsubishi Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi Materials 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 Mitsubishi Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi Materials has no effect on the direction of SIMS METAL i.e., SIMS METAL and Mitsubishi Materials go up and down completely randomly.

Pair Corralation between SIMS METAL and Mitsubishi Materials

Assuming the 90 days trading horizon SIMS METAL MGT is expected to generate 1.61 times more return on investment than Mitsubishi Materials. However, SIMS METAL is 1.61 times more volatile than Mitsubishi Materials. It trades about 0.16 of its potential returns per unit of risk. Mitsubishi Materials is currently generating about 0.1 per unit of risk. If you would invest  695.00  in SIMS METAL MGT on December 30, 2024 and sell it today you would earn a total of  165.00  from holding SIMS METAL MGT or generate 23.74% return on investment over 90 days.

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

SIMS METAL MGT  vs.  Mitsubishi Materials

SIMS METAL MGT

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS METAL MGT are ranked lower than 12 (%) 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.

Mitsubishi Materials

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain forward-looking indicators, Mitsubishi Materials may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with SIMS METAL and Mitsubishi Materials

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

The idea behind SIMS METAL MGT and Mitsubishi Materials 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.