Correlation Between Sims and Beach Energy

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

By analyzing existing cross correlation between Sims and Beach Energy, you can compare the effects of market volatilities on Sims and Beach Energy 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 Beach Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sims and Beach Energy.

Diversification Opportunities for Sims and Beach Energy

0.04

Correlation Coefficient

Sims  Beach Energy

Significant diversification

The 3 months correlation between Sims and Beach is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sims and Beach Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beach Energy 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 Beach Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beach Energy has no effect on the direction of Sims i.e., Sims and Beach Energy go up and down completely randomly.

Pair Corralation between Sims and Beach Energy

Assuming the 90 days trading horizon Sims is expected to under-perform the Beach Energy. But the stock apears to be less risky and, when comparing its historical volatility, Sims is 1.64 times less risky than Beach Energy. The stock trades about -0.16 of its potential returns per unit of risk. The Beach Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  127.00  in Beach Energy on September 22, 2024 and sell it today you would earn a total of  9.00  from holding Beach Energy or generate 7.09% return on investment over 90 days.

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

Sims  vs.  Beach Energy

Sims

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sims has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, Sims is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Beach Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Beach Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Beach Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims and Beach Energy

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

The idea behind Sims and Beach Energy 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.