Correlation Between Sims Metal and China Datang

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

Diversification Opportunities for Sims Metal and China Datang

0.74

Correlation Coefficient

Sims Metal  China Datang

Poor diversification

The 3 months correlation between Sims and China is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and China Datang in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Datang 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 China Datang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Datang has no effect on the direction of Sims Metal i.e., Sims Metal and China Datang go up and down completely randomly.

Pair Corralation between Sims Metal and China Datang

Assuming the 90 days horizon Sims Metal is expected to generate 1.5 times less return on investment than China Datang. But when comparing it to its historical volatility, Sims Metal Management is 1.04 times less risky than China Datang. It trades about 0.07 of its potential returns per unit of risk. China Datang is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  23.00  in China Datang on September 15, 2024 and sell it today you would earn a total of  1.00  from holding China Datang or generate 4.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Sims Metal Management  vs.  China Datang

Sims Metal Management

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 9 (%) 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.

China Datang

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Datang are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, China Datang reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and China Datang

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

The idea behind Sims Metal Management and China Datang 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.