Correlation Between ArcelorMittal and Sims Metal
Can any of the company-specific risk be diversified away by investing in both ArcelorMittal 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 ArcelorMittal and Sims Metal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between ArcelorMittal SA and Sims Metal Management, you can compare the effects of market volatilities on ArcelorMittal 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 ArcelorMittal with a short position of Sims Metal. Check out your portfolio center. Please also check ongoing floating volatility patterns of ArcelorMittal and Sims Metal.
Diversification Opportunities for ArcelorMittal and Sims Metal
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between ArcelorMittal and Sims is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding ArcelorMittal SA 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 ArcelorMittal 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 ArcelorMittal SA 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 ArcelorMittal i.e., ArcelorMittal and Sims Metal go up and down completely randomly.
Pair Corralation between ArcelorMittal and Sims Metal
Assuming the 90 days trading horizon ArcelorMittal is expected to generate 1.22 times less return on investment than Sims Metal. But when comparing it to its historical volatility, ArcelorMittal SA is 1.15 times less risky than Sims Metal. It trades about 0.11 of its potential returns per unit of risk. Sims Metal Management is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 651.00 in Sims Metal Management on August 28, 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 | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
ArcelorMittal SA vs. Sims Metal Management
Performance |
| Timeline |
| ArcelorMittal SA |
| Sims Metal Management |
ArcelorMittal and Sims Metal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with ArcelorMittal and Sims Metal
The main advantage of trading using opposite ArcelorMittal and Sims Metal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ArcelorMittal 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 ArcelorMittal SA 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.Check out your portfolio center.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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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