Correlation Between Sims Metal and CHINA SOUTHN

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

Diversification Opportunities for Sims Metal and CHINA SOUTHN

-0.47

Correlation Coefficient

Sims Metal  CHINA SOUTHN

Very good diversification

The 3 months correlation between Sims and CHINA is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and CHINA SOUTHN AIR H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA SOUTHN AIR 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 CHINA SOUTHN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA SOUTHN AIR has no effect on the direction of Sims Metal i.e., Sims Metal and CHINA SOUTHN go up and down completely randomly.

Pair Corralation between Sims Metal and CHINA SOUTHN

Assuming the 90 days horizon Sims Metal Management is expected to under-perform the CHINA SOUTHN. But the stock apears to be less risky and, when comparing its historical volatility, Sims Metal Management is 1.19 times less risky than CHINA SOUTHN. The stock trades about -0.02 of its potential returns per unit of risk. The CHINA SOUTHN AIR H is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  39.00  in CHINA SOUTHN AIR H on October 6, 2024 and sell it today you would earn a total of  9.00  from holding CHINA SOUTHN AIR H or generate 23.08% 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.  CHINA SOUTHN AIR H

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.

CHINA SOUTHN AIR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA SOUTHN AIR H are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, CHINA SOUTHN unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and CHINA SOUTHN

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

The idea behind Sims Metal Management and CHINA SOUTHN AIR H 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.