Correlation Between Sims Metal and Guangdong Investment

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

Diversification Opportunities for Sims Metal and Guangdong Investment

-0.54

Correlation Coefficient

Sims Metal  Guangdong Investment

Excellent diversification

The 3 months correlation between Sims and Guangdong is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Guangdong Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangdong Investment 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 Guangdong Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangdong Investment has no effect on the direction of Sims Metal i.e., Sims Metal and Guangdong Investment go up and down completely randomly.

Pair Corralation between Sims Metal and Guangdong Investment

Assuming the 90 days horizon Sims Metal Management is expected to generate 0.51 times more return on investment than Guangdong Investment. However, Sims Metal Management is 1.97 times less risky than Guangdong Investment. It trades about 0.34 of its potential returns per unit of risk. Guangdong Investment Limited is currently generating about -0.16 per unit of risk. If you would invest  705.00  in Sims Metal Management on October 27, 2024 and sell it today you would earn a total of  95.00  from holding Sims Metal Management or generate 13.48% 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.  Guangdong Investment Limited

Sims Metal Management

Risk-Adjusted Performance

1 of 100

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.

Guangdong Investment

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Investment Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Guangdong Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and Guangdong Investment

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

The idea behind Sims Metal Management and Guangdong Investment Limited 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.