Correlation Between Sims Metal and Perdoceo Education

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

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

Diversification Opportunities for Sims Metal and Perdoceo Education

0.26

Correlation Coefficient

Sims Metal  Perdoceo Education

Modest diversification

The 3 months correlation between Sims and Perdoceo is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Perdoceo Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Perdoceo Education and Sims Metal 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 Metal Management are associated (or correlated) with Perdoceo Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Perdoceo Education has no effect on the direction of Sims Metal i.e., Sims Metal and Perdoceo Education go up and down completely randomly.

Pair Corralation between Sims Metal and Perdoceo Education

Assuming the 90 days horizon Sims Metal is expected to generate 1.77 times less return on investment than Perdoceo Education. But when comparing it to its historical volatility, Sims Metal Management is 1.04 times less risky than Perdoceo Education. It trades about 0.1 of its potential returns per unit of risk. Perdoceo Education is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,980  in Perdoceo Education on September 17, 2024 and sell it today you would earn a total of  620.00  from holding Perdoceo Education or generate 31.31% return on investment over 90 days.

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

Sims Metal Management  vs.  Perdoceo Education

Sims Metal Management

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sims Metal reported solid returns over the last few months and may actually be approaching a breakup point.

Perdoceo Education

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Perdoceo Education are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Perdoceo Education reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and Perdoceo Education

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

The idea behind Sims Metal Management and Perdoceo Education 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.