Correlation Between Sims Metal and Chesapeake Utilities

Can any of the company-specific risk be diversified away by investing in both Sims Metal and Chesapeake Utilities 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 Chesapeake Utilities 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 Chesapeake Utilities, you can compare the effects of market volatilities on Sims Metal and Chesapeake Utilities 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 Chesapeake Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sims Metal and Chesapeake Utilities.

Diversification Opportunities for Sims Metal and Chesapeake Utilities

0.44

Correlation Coefficient

Sims Metal  Chesapeake Utilities

Very weak diversification

The 3 months correlation between Sims and Chesapeake is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Chesapeake Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Utilities 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 Chesapeake Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Utilities has no effect on the direction of Sims Metal i.e., Sims Metal and Chesapeake Utilities go up and down completely randomly.

Pair Corralation between Sims Metal and Chesapeake Utilities

Assuming the 90 days horizon Sims Metal Management is expected to generate 1.64 times more return on investment than Chesapeake Utilities. However, Sims Metal is 1.64 times more volatile than Chesapeake Utilities. It trades about 0.14 of its potential returns per unit of risk. Chesapeake Utilities is currently generating about 0.17 per unit of risk. If you would invest  656.00  in Sims Metal Management on September 3, 2024 and sell it today you would earn a total of  144.00  from holding Sims Metal Management or generate 21.95% return on investment over 90 days.

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

Sims Metal Management  vs.  Chesapeake Utilities

Sims Metal Management

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 11 (%) 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.

Chesapeake Utilities

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Utilities are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Chesapeake Utilities reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and Chesapeake Utilities

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

The idea behind Sims Metal Management and Chesapeake Utilities 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.