Correlation Between Sims Metal and PRECISION DRILLING

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

Diversification Opportunities for Sims Metal and PRECISION DRILLING

0.1

Correlation Coefficient

Sims Metal  PRECISION DRILLING

Average diversification

The 3 months correlation between Sims and PRECISION is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and PRECISION DRILLING P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PRECISION DRILLING 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 PRECISION DRILLING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PRECISION DRILLING has no effect on the direction of Sims Metal i.e., Sims Metal and PRECISION DRILLING go up and down completely randomly.

Pair Corralation between Sims Metal and PRECISION DRILLING

Assuming the 90 days horizon Sims Metal Management is expected to generate 1.48 times more return on investment than PRECISION DRILLING. However, Sims Metal is 1.48 times more volatile than PRECISION DRILLING P. It trades about -0.15 of its potential returns per unit of risk. PRECISION DRILLING P is currently generating about -0.44 per unit of risk. If you would invest  775.00  in Sims Metal Management on September 24, 2024 and sell it today you would lose (60.00) from holding Sims Metal Management or give up 7.74% of portfolio value over 90 days.

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

Sims Metal Management  vs.  PRECISION DRILLING P

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 nearly stable basic indicators, Sims Metal is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PRECISION DRILLING

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Sims Metal and PRECISION DRILLING

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

The idea behind Sims Metal Management and PRECISION DRILLING P 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.