Correlation Between Nishi-Nippon Railroad and Sims Metal

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

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

Diversification Opportunities for Nishi-Nippon Railroad and Sims Metal

0.11

Correlation Coefficient

Nishi-Nippon Railroad  Sims Metal

Average diversification

The 3 months correlation between Nishi-Nippon and Sims is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Nishi Nippon Railroad Co 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 Nishi-Nippon Railroad 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 Nishi Nippon Railroad Co 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 Nishi-Nippon Railroad i.e., Nishi-Nippon Railroad and Sims Metal go up and down completely randomly.

Pair Corralation between Nishi-Nippon Railroad and Sims Metal

Assuming the 90 days horizon Nishi-Nippon Railroad is expected to generate 8.29 times less return on investment than Sims Metal. But when comparing it to its historical volatility, Nishi Nippon Railroad Co is 1.38 times less risky than Sims Metal. It trades about 0.03 of its potential returns per unit of risk. Sims Metal Management is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  710.00  in Sims Metal Management on December 20, 2024 and sell it today you would earn a total of  175.00  from holding Sims Metal Management or generate 24.65% return on investment over 90 days.

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

Nishi Nippon Railroad Co  vs.  Sims Metal Management

Nishi Nippon Railroad

Risk-Adjusted Performance

Weak

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

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

Pair Trading with Nishi-Nippon Railroad and Sims Metal

The main advantage of trading using opposite Nishi-Nippon Railroad and Sims Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nishi-Nippon Railroad 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 Nishi Nippon Railroad Co 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.