Correlation Between SIMS METAL and NetApp

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

Diversification Opportunities for SIMS METAL and NetApp

0.54

Correlation Coefficient

SIMS METAL  NetApp

Very weak diversification

The 3 months correlation between SIMS and NetApp is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and NetApp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetApp Inc 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 NetApp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetApp Inc has no effect on the direction of SIMS METAL i.e., SIMS METAL and NetApp go up and down completely randomly.

Pair Corralation between SIMS METAL and NetApp

Assuming the 90 days trading horizon SIMS METAL MGT is expected to under-perform the NetApp. But the stock apears to be less risky and, when comparing its historical volatility, SIMS METAL MGT is 1.36 times less risky than NetApp. The stock trades about -0.03 of its potential returns per unit of risk. The NetApp Inc is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  10,978  in NetApp Inc on September 18, 2024 and sell it today you would earn a total of  1,230  from holding NetApp Inc or generate 11.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

SIMS METAL MGT  vs.  NetApp Inc

SIMS METAL MGT

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS METAL MGT are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, SIMS METAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

NetApp Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetApp Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NetApp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIMS METAL and NetApp

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

The idea behind SIMS METAL MGT and NetApp Inc 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.