Correlation Between Sims Metal and KB HOME

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

Diversification Opportunities for Sims Metal and KB HOME

0.61

Correlation Coefficient

Sims Metal  KB HOME

Poor diversification

The 3 months correlation between Sims and KBH is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and KB HOME in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KB HOME 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 KB HOME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KB HOME has no effect on the direction of Sims Metal i.e., Sims Metal and KB HOME go up and down completely randomly.

Pair Corralation between Sims Metal and KB HOME

Assuming the 90 days horizon Sims Metal Management is expected to under-perform the KB HOME. But the stock apears to be less risky and, when comparing its historical volatility, Sims Metal Management is 1.02 times less risky than KB HOME. The stock trades about -0.02 of its potential returns per unit of risk. The KB HOME is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,545  in KB HOME on September 28, 2024 and sell it today you would earn a total of  2,755  from holding KB HOME or generate 77.72% return on investment over 90 days.

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

Sims Metal Management  vs.  KB HOME

Sims Metal Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sims Metal Management has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

KB HOME

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KB HOME has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Sims Metal and KB HOME

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

The idea behind Sims Metal Management and KB HOME 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.