Correlation Between Sims Metal and CITIC Telecom

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

Diversification Opportunities for Sims Metal and CITIC Telecom

-0.14

Correlation Coefficient

Sims Metal  CITIC Telecom

Good diversification

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

Pair Corralation between Sims Metal and CITIC Telecom

Assuming the 90 days horizon Sims Metal Management is expected to under-perform the CITIC Telecom. But the stock apears to be less risky and, when comparing its historical volatility, Sims Metal Management is 4.24 times less risky than CITIC Telecom. The stock trades about -0.02 of its potential returns per unit of risk. The CITIC Telecom International is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  11.00  in CITIC Telecom International on October 3, 2024 and sell it today you would earn a total of  16.00  from holding CITIC Telecom International or generate 145.45% 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.  CITIC Telecom International

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 fragile 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.

CITIC Telecom Intern

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CITIC Telecom International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CITIC Telecom may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Sims Metal and CITIC Telecom

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

The idea behind Sims Metal Management and CITIC Telecom International 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.