Correlation Between BANK CIMB and Sims Metal

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

By analyzing existing cross correlation between BANK CIMB NIAGA and Sims Metal Management, you can compare the effects of market volatilities on BANK CIMB and Sims Metal 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 BANK CIMB with a short position of Sims Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of BANK CIMB and Sims Metal.

Diversification Opportunities for BANK CIMB and Sims Metal

0.48

Correlation Coefficient

BANK CIMB  Sims Metal

Very weak diversification

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

Pair Corralation between BANK CIMB and Sims Metal

Assuming the 90 days trading horizon BANK CIMB NIAGA is expected to generate 1.0 times more return on investment than Sims Metal. However, BANK CIMB is 1.0 times more volatile than Sims Metal Management. It trades about -0.12 of its potential returns per unit of risk. Sims Metal Management is currently generating about -0.17 per unit of risk. If you would invest  10.00  in BANK CIMB NIAGA on October 10, 2024 and sell it today you would lose (0.45) from holding BANK CIMB NIAGA or give up 4.5% of portfolio value over 90 days.

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

BANK CIMB NIAGA  vs.  Sims Metal Management

BANK CIMB NIAGA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BANK CIMB NIAGA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, BANK CIMB is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with BANK CIMB and Sims Metal

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

The idea behind BANK CIMB NIAGA and Sims Metal Management 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.