Correlation Between Sims Metal and Mitsui Chemicals

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

Diversification Opportunities for Sims Metal and Mitsui Chemicals

-0.03

Correlation Coefficient

Sims Metal  Mitsui Chemicals

Good diversification

The 3 months correlation between Sims and Mitsui is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Mitsui Chemicals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsui Chemicals 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 Mitsui Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsui Chemicals has no effect on the direction of Sims Metal i.e., Sims Metal and Mitsui Chemicals go up and down completely randomly.

Pair Corralation between Sims Metal and Mitsui Chemicals

Assuming the 90 days horizon Sims Metal Management is expected to generate 1.22 times more return on investment than Mitsui Chemicals. However, Sims Metal is 1.22 times more volatile than Mitsui Chemicals. It trades about -0.05 of its potential returns per unit of risk. Mitsui Chemicals is currently generating about -0.14 per unit of risk. If you would invest  760.00  in Sims Metal Management on September 28, 2024 and sell it today you would lose (60.00) from holding Sims Metal Management or give up 7.89% of portfolio value over 90 days.

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

Sims Metal Management  vs.  Mitsui Chemicals

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.

Mitsui Chemicals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mitsui Chemicals 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 forward indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Sims Metal and Mitsui Chemicals

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

The idea behind Sims Metal Management and Mitsui Chemicals 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.