Correlation Between SIMS METAL and Transportadora

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

Diversification Opportunities for SIMS METAL and Transportadora

0.26

Correlation Coefficient

SIMS METAL  Transportadora

Modest diversification

The 3 months correlation between SIMS and Transportadora is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Transportadora de Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportadora de Gas 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 Transportadora. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportadora de Gas has no effect on the direction of SIMS METAL i.e., SIMS METAL and Transportadora go up and down completely randomly.

Pair Corralation between SIMS METAL and Transportadora

Assuming the 90 days trading horizon SIMS METAL MGT is expected to under-perform the Transportadora. But the stock apears to be less risky and, when comparing its historical volatility, SIMS METAL MGT is 2.37 times less risky than Transportadora. The stock trades about -0.03 of its potential returns per unit of risk. The Transportadora de Gas is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,560  in Transportadora de Gas on September 18, 2024 and sell it today you would earn a total of  420.00  from holding Transportadora de Gas or generate 16.41% return on investment over 90 days.

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

SIMS METAL MGT  vs.  Transportadora de Gas

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.

Transportadora de Gas

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Transportadora de Gas are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward-looking signals, Transportadora reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIMS METAL and Transportadora

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

The idea behind SIMS METAL MGT and Transportadora de Gas 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.