Correlation Between Sims Metal and DISTRICT METALS

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

Diversification Opportunities for Sims Metal and DISTRICT METALS

-0.01

Correlation Coefficient

Sims Metal  DISTRICT METALS

Good diversification

The 3 months correlation between Sims and DISTRICT is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and DISTRICT METALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DISTRICT METALS 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 DISTRICT METALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DISTRICT METALS has no effect on the direction of Sims Metal i.e., Sims Metal and DISTRICT METALS go up and down completely randomly.

Pair Corralation between Sims Metal and DISTRICT METALS

Assuming the 90 days horizon Sims Metal Management is expected to generate 0.54 times more return on investment than DISTRICT METALS. However, Sims Metal Management is 1.84 times less risky than DISTRICT METALS. It trades about 0.42 of its potential returns per unit of risk. DISTRICT METALS is currently generating about 0.08 per unit of risk. If you would invest  700.00  in Sims Metal Management on October 22, 2024 and sell it today you would earn a total of  100.00  from holding Sims Metal Management or generate 14.29% 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.  DISTRICT METALS

Sims Metal Management

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

DISTRICT METALS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DISTRICT METALS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, DISTRICT METALS 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 DISTRICT METALS

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

The idea behind Sims Metal Management and DISTRICT METALS 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.