Correlation Between Sims Metal and Citizens Financial

Can any of the company-specific risk be diversified away by investing in both Sims Metal and Citizens Financial 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 Citizens Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Sims Metal Management and Citizens Financial Group, you can compare the effects of market volatilities on Sims Metal and Citizens Financial 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 Citizens Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sims Metal and Citizens Financial.

Diversification Opportunities for Sims Metal and Citizens Financial

0.36

Correlation Coefficient

Sims Metal  Citizens Financial

Weak diversification

The 3 months correlation between Sims and Citizens is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Citizens Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens Financial 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 Management are associated (or correlated) with Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial has no effect on the direction of Sims Metal i.e., Sims Metal and Citizens Financial go up and down completely randomly.

Pair Corralation between Sims Metal and Citizens Financial

Assuming the 90 days horizon Sims Metal is expected to generate 6.43 times less return on investment than Citizens Financial. But when comparing it to its historical volatility, Sims Metal Management is 1.04 times less risky than Citizens Financial. It trades about 0.01 of its potential returns per unit of risk. Citizens Financial Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,300  in Citizens Financial Group on September 20, 2024 and sell it today you would earn a total of  945.00  from holding Citizens Financial Group or generate 28.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Sims Metal Management  vs.  Citizens Financial Group

Sims Metal Management

Risk-Adjusted Performance

0 of 100

Very Weak

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

Citizens Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Citizens Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and Citizens Financial

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

The idea behind Sims Metal Management and Citizens Financial Group 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.