Correlation Between Sims Metal and Pebblebrook Hotel

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

Diversification Opportunities for Sims Metal and Pebblebrook Hotel

-0.15

Correlation Coefficient

Sims Metal  Pebblebrook Hotel

Good diversification

The 3 months correlation between Sims and Pebblebrook is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Pebblebrook Hotel Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pebblebrook Hotel Trust 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 Pebblebrook Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pebblebrook Hotel Trust has no effect on the direction of Sims Metal i.e., Sims Metal and Pebblebrook Hotel go up and down completely randomly.

Pair Corralation between Sims Metal and Pebblebrook Hotel

Assuming the 90 days horizon Sims Metal Management is expected to under-perform the Pebblebrook Hotel. But the stock apears to be less risky and, when comparing its historical volatility, Sims Metal Management is 1.03 times less risky than Pebblebrook Hotel. The stock trades about -0.01 of its potential returns per unit of risk. The Pebblebrook Hotel Trust is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,215  in Pebblebrook Hotel Trust on October 6, 2024 and sell it today you would earn a total of  55.00  from holding Pebblebrook Hotel Trust or generate 4.53% return on investment over 90 days.

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

Sims Metal Management  vs.  Pebblebrook Hotel Trust

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pebblebrook Hotel Trust

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Pebblebrook Hotel Trust are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Pebblebrook Hotel unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and Pebblebrook Hotel

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

The idea behind Sims Metal Management and Pebblebrook Hotel Trust 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.