Correlation Between SIMS METAL and FLOW TRADERS

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

Diversification Opportunities for SIMS METAL and FLOW TRADERS

0.14

Correlation Coefficient

SIMS METAL  FLOW TRADERS

Average diversification

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

Pair Corralation between SIMS METAL and FLOW TRADERS

Assuming the 90 days trading horizon SIMS METAL MGT is expected to under-perform the FLOW TRADERS. In addition to that, SIMS METAL is 1.08 times more volatile than FLOW TRADERS LTD. It trades about -0.02 of its total potential returns per unit of risk. FLOW TRADERS LTD is currently generating about 0.05 per unit of volatility. If you would invest  1,711  in FLOW TRADERS LTD on October 5, 2024 and sell it today you would earn a total of  433.00  from holding FLOW TRADERS LTD or generate 25.31% return on investment over 90 days.

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

SIMS METAL MGT  vs.  FLOW TRADERS LTD

SIMS METAL MGT

Risk-Adjusted Performance

0 of 100

Very 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 latest fragile performance, the Stock's primary indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

FLOW TRADERS LTD

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days FLOW TRADERS LTD has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, FLOW TRADERS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SIMS METAL and FLOW TRADERS

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

The idea behind SIMS METAL MGT and FLOW TRADERS LTD 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.