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

-0.3

Correlation Coefficient

United States  Simpson Manufacturing

Very good diversification

The 3 months correlation between United and Simpson is -0.3. 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 1.91 times more return on investment than Simpson Manufacturing. However, United States is 1.91 times more volatile than Simpson Manufacturing. It trades about 0.19 of its potential returns per unit of risk. Simpson Manufacturing is currently generating about -0.03 per unit of risk. If you would invest  3,099  in United States Steel on December 28, 2024 and sell it today you would earn a total of  1,199  from holding United States Steel or generate 38.69% return on investment over 90 days.

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

United States Steel  vs.  Simpson Manufacturing

United States Steel

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United States Steel are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, United States showed solid returns over the last few months and may actually be approaching a breakup point.

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 rather sound basic indicators, Simpson Manufacturing is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the 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 Global Correlations module to find global opportunities by holding instruments from different markets.