Correlation Between Sims Metal and Penta Ocean

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

Diversification Opportunities for Sims Metal and Penta Ocean

0.18

Correlation Coefficient

Sims Metal  Penta Ocean

Average diversification

The 3 months correlation between Sims and Penta is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Penta Ocean Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penta Ocean Construc 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 Penta Ocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penta Ocean Construc has no effect on the direction of Sims Metal i.e., Sims Metal and Penta Ocean go up and down completely randomly.

Pair Corralation between Sims Metal and Penta Ocean

Assuming the 90 days horizon Sims Metal Management is expected to generate 1.65 times more return on investment than Penta Ocean. However, Sims Metal is 1.65 times more volatile than Penta Ocean Construction Co. It trades about 0.12 of its potential returns per unit of risk. Penta Ocean Construction Co is currently generating about 0.04 per unit of risk. If you would invest  651.00  in Sims Metal Management on September 14, 2024 and sell it today you would earn a total of  114.00  from holding Sims Metal Management or generate 17.51% return on investment over 90 days.

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

Sims Metal Management  vs.  Penta Ocean Construction Co

Sims Metal Management

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 9 (%) 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.

Penta Ocean Construc

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penta Ocean Construction Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Penta Ocean is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sims Metal and Penta Ocean

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

The idea behind Sims Metal Management and Penta Ocean Construction Co 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.