Correlation Between Sims Metal and Talanx AG

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

Diversification Opportunities for Sims Metal and Talanx AG

0.17

Correlation Coefficient

Sims Metal  Talanx AG

Average diversification

The 3 months correlation between Sims and Talanx is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Talanx AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talanx AG 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 Talanx AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talanx AG has no effect on the direction of Sims Metal i.e., Sims Metal and Talanx AG go up and down completely randomly.

Pair Corralation between Sims Metal and Talanx AG

Assuming the 90 days horizon Sims Metal Management is expected to generate 1.22 times more return on investment than Talanx AG. However, Sims Metal is 1.22 times more volatile than Talanx AG. It trades about 0.22 of its potential returns per unit of risk. Talanx AG is currently generating about 0.19 per unit of risk. If you would invest  695.00  in Sims Metal Management on December 21, 2024 and sell it today you would earn a total of  180.00  from holding Sims Metal Management or generate 25.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Sims Metal Management  vs.  Talanx AG

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 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sims Metal reported solid returns over the last few months and may actually be approaching a breakup point.

Talanx AG

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Talanx AG are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Talanx AG unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and Talanx AG

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

The idea behind Sims Metal Management and Talanx AG 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.