Correlation Between SIMS METAL and Murata Manufacturing

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

Diversification Opportunities for SIMS METAL and Murata Manufacturing

0.27

Correlation Coefficient

SIMS METAL  Murata Manufacturing

Modest diversification

The 3 months correlation between SIMS and Murata is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Murata Manufacturing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Murata Manufacturing 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 Murata Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Murata Manufacturing has no effect on the direction of SIMS METAL i.e., SIMS METAL and Murata Manufacturing go up and down completely randomly.

Pair Corralation between SIMS METAL and Murata Manufacturing

Assuming the 90 days trading horizon SIMS METAL MGT is expected to generate 1.26 times more return on investment than Murata Manufacturing. However, SIMS METAL is 1.26 times more volatile than Murata Manufacturing Co. It trades about 0.16 of its potential returns per unit of risk. Murata Manufacturing Co is currently generating about 0.02 per unit of risk. If you would invest  695.00  in SIMS METAL MGT on December 29, 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	Very Weak
Accuracy	98.44%
Values	Daily Returns

SIMS METAL MGT  vs.  Murata Manufacturing Co

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.

Murata Manufacturing

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Murata Manufacturing Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Murata Manufacturing 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 Murata Manufacturing

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

The idea behind SIMS METAL MGT and Murata Manufacturing Co 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.