Correlation Between Sims and Austral Gold

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

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

Diversification Opportunities for Sims and Austral Gold

0.8

Correlation Coefficient

Sims  Austral Gold

Very poor diversification

The 3 months correlation between Sims and Austral is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sims and Austral Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Austral Gold and Sims 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 are associated (or correlated) with Austral Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Austral Gold has no effect on the direction of Sims i.e., Sims and Austral Gold go up and down completely randomly.

Pair Corralation between Sims and Austral Gold

Assuming the 90 days trading horizon Sims is expected to generate 2.43 times less return on investment than Austral Gold. But when comparing it to its historical volatility, Sims is 3.14 times less risky than Austral Gold. It trades about 0.01 of its potential returns per unit of risk. Austral Gold is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3.90  in Austral Gold on September 4, 2024 and sell it today you would lose (1.80) from holding Austral Gold or give up 46.15% of portfolio value over 90 days.

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

Sims  vs.  Austral Gold

Sims

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sims are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Sims unveiled solid returns over the last few months and may actually be approaching a breakup point.

Austral Gold

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Austral Gold are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental indicators, Austral Gold unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims and Austral Gold

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

The idea behind Sims and Austral Gold 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.