Correlation Between Northern Star and Sims

Can any of the company-specific risk be diversified away by investing in both Northern Star and Sims 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 Northern Star and Sims into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Northern Star Resources and Sims, you can compare the effects of market volatilities on Northern Star and Sims 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 Northern Star with a short position of Sims. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Star and Sims.

Diversification Opportunities for Northern Star and Sims

0.48

Correlation Coefficient

Northern Star  Sims

Very weak diversification

The 3 months correlation between Northern and Sims is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Northern Star Resources and Sims in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sims and Northern Star 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 Northern Star Resources are associated (or correlated) with Sims. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sims has no effect on the direction of Northern Star i.e., Northern Star and Sims go up and down completely randomly.

Pair Corralation between Northern Star and Sims

Assuming the 90 days trading horizon Northern Star is expected to generate 1.46 times less return on investment than Sims. But when comparing it to its historical volatility, Northern Star Resources is 1.04 times less risky than Sims. It trades about 0.1 of its potential returns per unit of risk. Sims is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,078  in Sims on September 12, 2024 and sell it today you would earn a total of  212.00  from holding Sims or generate 19.67% return on investment over 90 days.

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

Northern Star Resources  vs.  Sims

Northern Star Resources

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Star Resources are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Northern Star unveiled solid returns over the last few months and may actually be approaching a breakup point.

Sims

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Sims has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively weak primary indicators, Sims unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Northern Star and Sims

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

The idea behind Northern Star Resources and Sims 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 Global Correlations module to find global opportunities by holding instruments from different markets.