Correlation Between PRECISION DRILLING and Sims Metal

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

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

Diversification Opportunities for PRECISION DRILLING and Sims Metal

0.1

Correlation Coefficient

PRECISION DRILLING  Sims Metal

Average diversification

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

Pair Corralation between PRECISION DRILLING and Sims Metal

Assuming the 90 days trading horizon PRECISION DRILLING P is expected to under-perform the Sims Metal. In addition to that, PRECISION DRILLING is 1.05 times more volatile than Sims Metal Management. It trades about -0.05 of its total potential returns per unit of risk. Sims Metal Management is currently generating about 0.01 per unit of volatility. If you would invest  716.00  in Sims Metal Management on September 24, 2024 and sell it today you would lose (1.00) from holding Sims Metal Management or give up 0.14% of portfolio value over 90 days.

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

PRECISION DRILLING P  vs.  Sims Metal Management

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.

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.

Pair Trading with PRECISION DRILLING and Sims Metal

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

The idea behind PRECISION DRILLING P and Sims Metal Management 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.