Correlation Between Sims Metal and International Consolidated

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

Diversification Opportunities for Sims Metal and International Consolidated

-0.46

Correlation Coefficient

Sims Metal  International Consolidated

Very good diversification

The 3 months correlation between Sims and International is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and International Consolidated Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Consolidated 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 International Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Consolidated has no effect on the direction of Sims Metal i.e., Sims Metal and International Consolidated go up and down completely randomly.

Pair Corralation between Sims Metal and International Consolidated

Assuming the 90 days horizon Sims Metal is expected to generate 25.91 times less return on investment than International Consolidated. In addition to that, Sims Metal is 1.11 times more volatile than International Consolidated Airlines. It trades about 0.01 of its total potential returns per unit of risk. International Consolidated Airlines is currently generating about 0.33 per unit of volatility. If you would invest  256.00  in International Consolidated Airlines on October 23, 2024 and sell it today you would earn a total of  126.00  from holding International Consolidated Airlines or generate 49.22% 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.  International Consolidated Air

Sims Metal Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sims Metal Management has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

International Consolidated

Risk-Adjusted Performance

26 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, International Consolidated reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and International Consolidated

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

The idea behind Sims Metal Management and International Consolidated Airlines 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.