Correlation Between Sims Metal and FORTEC ELEKTRONIK

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

Diversification Opportunities for Sims Metal and FORTEC ELEKTRONIK

-0.42

Correlation Coefficient

Sims Metal  FORTEC ELEKTRONIK

Very good diversification

The 3 months correlation between Sims and FORTEC is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and FORTEC ELEKTRONIK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FORTEC ELEKTRONIK 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 FORTEC ELEKTRONIK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FORTEC ELEKTRONIK has no effect on the direction of Sims Metal i.e., Sims Metal and FORTEC ELEKTRONIK go up and down completely randomly.

Pair Corralation between Sims Metal and FORTEC ELEKTRONIK

Assuming the 90 days horizon Sims Metal Management is expected to generate 0.61 times more return on investment than FORTEC ELEKTRONIK. However, Sims Metal Management is 1.64 times less risky than FORTEC ELEKTRONIK. It trades about 0.21 of its potential returns per unit of risk. FORTEC ELEKTRONIK is currently generating about -0.05 per unit of risk. If you would invest  710.00  in Sims Metal Management on December 20, 2024 and sell it today you would earn a total of  175.00  from holding Sims Metal Management or generate 24.65% return on investment over 90 days.

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

Sims Metal Management  vs.  FORTEC ELEKTRONIK

Sims Metal Management

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sims Metal reported solid returns over the last few months and may actually be approaching a breakup point.

FORTEC ELEKTRONIK

Risk-Adjusted Performance

Very Weak

Over the last 90 days FORTEC ELEKTRONIK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Sims Metal and FORTEC ELEKTRONIK

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

The idea behind Sims Metal Management and FORTEC ELEKTRONIK 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.