Correlation Between Lendlease and SIMS

Can any of the company-specific risk be diversified away by investing in both Lendlease and SIMS 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 Lendlease and SIMS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lendlease Group and SIMS LTD ADR, you can compare the effects of market volatilities on Lendlease and SIMS 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 Lendlease with a short position of SIMS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lendlease and SIMS.

Diversification Opportunities for Lendlease and SIMS

0.48

Correlation Coefficient

Lendlease  SIMS

Very weak diversification

The 3 months correlation between Lendlease and SIMS is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Lendlease Group and SIMS LTD ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMS LTD ADR and Lendlease 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 Lendlease Group are associated (or correlated) with SIMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMS LTD ADR has no effect on the direction of Lendlease i.e., Lendlease and SIMS go up and down completely randomly.

Pair Corralation between Lendlease and SIMS

Assuming the 90 days trading horizon Lendlease Group is expected to under-perform the SIMS. But the stock apears to be less risky and, when comparing its historical volatility, Lendlease Group is 1.55 times less risky than SIMS. The stock trades about -0.08 of its potential returns per unit of risk. The SIMS LTD ADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  770.00  in SIMS LTD ADR on October 25, 2024 and sell it today you would earn a total of  25.00  from holding SIMS LTD ADR or generate 3.25% return on investment over 90 days.

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

Lendlease Group  vs.  SIMS LTD ADR

Lendlease Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lendlease Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

SIMS LTD ADR

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS LTD ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, SIMS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lendlease and SIMS

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

The idea behind Lendlease Group and SIMS LTD ADR 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.