Correlation Between Sims Metal and GFL ENVIRONM

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

Diversification Opportunities for Sims Metal and GFL ENVIRONM

-0.2

Correlation Coefficient

Sims Metal  GFL ENVIRONM

Good diversification

The 3 months correlation between Sims and GFL is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and GFL ENVIRONM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GFL ENVIRONM 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 GFL ENVIRONM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GFL ENVIRONM has no effect on the direction of Sims Metal i.e., Sims Metal and GFL ENVIRONM go up and down completely randomly.

Pair Corralation between Sims Metal and GFL ENVIRONM

Assuming the 90 days horizon Sims Metal Management is expected to under-perform the GFL ENVIRONM. In addition to that, Sims Metal is 1.27 times more volatile than GFL ENVIRONM. It trades about -0.06 of its total potential returns per unit of risk. GFL ENVIRONM is currently generating about 0.18 per unit of volatility. If you would invest  3,579  in GFL ENVIRONM on October 1, 2024 and sell it today you would earn a total of  681.00  from holding GFL ENVIRONM or generate 19.03% return on investment over 90 days.

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

Sims Metal Management  vs.  GFL ENVIRONM

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 latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

GFL ENVIRONM

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in GFL ENVIRONM are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, GFL ENVIRONM reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and GFL ENVIRONM

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

The idea behind Sims Metal Management and GFL ENVIRONM 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.