Correlation Between United States and Simpson Manufacturing

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

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

Diversification Opportunities for United States and Simpson Manufacturing

0.47

Correlation Coefficient

United States  Simpson Manufacturing

Very weak diversification

The 3 months correlation between United and Simpson is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and Simpson Manufacturing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simpson Manufacturing and United States 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 United States Steel are associated (or correlated) with Simpson Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simpson Manufacturing has no effect on the direction of United States i.e., United States and Simpson Manufacturing go up and down completely randomly.

Pair Corralation between United States and Simpson Manufacturing

Taking into account the 90-day investment horizon United States Steel is expected to generate 1.5 times more return on investment than Simpson Manufacturing. However, United States is 1.5 times more volatile than Simpson Manufacturing. It trades about 0.06 of its potential returns per unit of risk. Simpson Manufacturing is currently generating about 0.07 per unit of risk. If you would invest  3,677  in United States Steel on November 28, 2024 and sell it today you would earn a total of  92.00  from holding United States Steel or generate 2.5% return on investment over 90 days.

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

United States Steel  vs.  Simpson Manufacturing

United States Steel

Risk-Adjusted Performance

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, United States is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Simpson Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simpson Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with United States and Simpson Manufacturing

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

The idea behind United States Steel and Simpson Manufacturing 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.