Correlation Between Sims Metal and Globex Mining

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

Diversification Opportunities for Sims Metal and Globex Mining

0.73

Correlation Coefficient

Sims Metal  Globex Mining

Poor diversification

The 3 months correlation between Sims and Globex is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Globex Mining Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Globex Mining Enterprises 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 Globex Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Globex Mining Enterprises has no effect on the direction of Sims Metal i.e., Sims Metal and Globex Mining go up and down completely randomly.

Pair Corralation between Sims Metal and Globex Mining

Assuming the 90 days horizon Sims Metal is expected to generate 1.27 times less return on investment than Globex Mining. But when comparing it to its historical volatility, Sims Metal Management is 1.33 times less risky than Globex Mining. It trades about 0.21 of its potential returns per unit of risk. Globex Mining Enterprises is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  76.00  in Globex Mining Enterprises on December 20, 2024 and sell it today you would earn a total of  24.00  from holding Globex Mining Enterprises or generate 31.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Sims Metal Management  vs.  Globex Mining Enterprises

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.

Globex Mining Enterprises

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Globex Mining Enterprises are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Globex Mining unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and Globex Mining

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

The idea behind Sims Metal Management and Globex Mining Enterprises 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.