Correlation Between Sims Metal and CIA ENGER

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

Diversification Opportunities for Sims Metal and CIA ENGER

0.52

Correlation Coefficient

Sims Metal  CIA ENGER

Very weak diversification

The 3 months correlation between Sims and CIA is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and CIA ENGER ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIA ENGER ADR 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 CIA ENGER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIA ENGER ADR has no effect on the direction of Sims Metal i.e., Sims Metal and CIA ENGER go up and down completely randomly.

Pair Corralation between Sims Metal and CIA ENGER

Assuming the 90 days horizon Sims Metal Management is expected to generate 10.72 times more return on investment than CIA ENGER. However, Sims Metal is 10.72 times more volatile than CIA ENGER ADR. It trades about 0.17 of its potential returns per unit of risk. CIA ENGER ADR is currently generating about 0.13 per unit of risk. If you would invest  695.00  in Sims Metal Management on December 19, 2024 and sell it today you would earn a total of  145.00  from holding Sims Metal Management or generate 20.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Sims Metal Management  vs.  CIA ENGER ADR

Sims Metal Management

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sims Metal reported solid returns over the last few months and may actually be approaching a breakup point.

CIA ENGER ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CIA ENGER ADR are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, CIA ENGER is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sims Metal and CIA ENGER

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

The idea behind Sims Metal Management and CIA ENGER ADR 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.