Correlation Between Sims Metal and SOLSTAD OFFSHORE

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

Diversification Opportunities for Sims Metal and SOLSTAD OFFSHORE

-0.18

Correlation Coefficient

Sims Metal  SOLSTAD OFFSHORE

Good diversification

The 3 months correlation between Sims and SOLSTAD is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and SOLSTAD OFFSHORE NK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOLSTAD OFFSHORE 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 SOLSTAD OFFSHORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOLSTAD OFFSHORE has no effect on the direction of Sims Metal i.e., Sims Metal and SOLSTAD OFFSHORE go up and down completely randomly.

Pair Corralation between Sims Metal and SOLSTAD OFFSHORE

Assuming the 90 days horizon Sims Metal is expected to generate 20.55 times less return on investment than SOLSTAD OFFSHORE. But when comparing it to its historical volatility, Sims Metal Management is 1.6 times less risky than SOLSTAD OFFSHORE. It trades about 0.01 of its potential returns per unit of risk. SOLSTAD OFFSHORE NK is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  253.00  in SOLSTAD OFFSHORE NK on October 23, 2024 and sell it today you would earn a total of  85.00  from holding SOLSTAD OFFSHORE NK or generate 33.6% 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.  SOLSTAD OFFSHORE NK

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.

SOLSTAD OFFSHORE

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SOLSTAD OFFSHORE NK are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SOLSTAD OFFSHORE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and SOLSTAD OFFSHORE

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

The idea behind Sims Metal Management and SOLSTAD OFFSHORE NK 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 Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.