Correlation Between SIMS METAL and Constellation Software

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

Diversification Opportunities for SIMS METAL and Constellation Software

0.28

Correlation Coefficient

SIMS METAL  Constellation Software

Modest diversification

The 3 months correlation between SIMS and Constellation is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Constellation Software in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Software 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 Constellation Software. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Software has no effect on the direction of SIMS METAL i.e., SIMS METAL and Constellation Software go up and down completely randomly.

Pair Corralation between SIMS METAL and Constellation Software

Assuming the 90 days trading horizon SIMS METAL MGT is expected to generate 1.6 times more return on investment than Constellation Software. However, SIMS METAL is 1.6 times more volatile than Constellation Software. It trades about 0.19 of its potential returns per unit of risk. Constellation Software is currently generating about -0.01 per unit of risk. If you would invest  695.00  in SIMS METAL MGT on December 25, 2024 and sell it today you would earn a total of  190.00  from holding SIMS METAL MGT or generate 27.34% 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.  Constellation Software

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 14 (%) 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.

Constellation Software

Risk-Adjusted Performance

Very Weak

Over the last 90 days Constellation Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Constellation Software is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SIMS METAL and Constellation Software

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

The idea behind SIMS METAL MGT and Constellation Software 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.