Correlation Between SIMS METAL and KINGDEE INTL
Can any of the company-specific risk be diversified away by investing in both SIMS METAL and KINGDEE INTL 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 KINGDEE INTL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SIMS METAL MGT and KINGDEE INTL SOFTWA, you can compare the effects of market volatilities on SIMS METAL and KINGDEE INTL 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 KINGDEE INTL. Check out your portfolio center. Please also check ongoing floating volatility patterns of SIMS METAL and KINGDEE INTL.
Diversification Opportunities for SIMS METAL and KINGDEE INTL
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SIMS and KINGDEE is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and KINGDEE INTL SOFTWA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KINGDEE INTL SOFTWA 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 MGT are associated (or correlated) with KINGDEE INTL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KINGDEE INTL SOFTWA has no effect on the direction of SIMS METAL i.e., SIMS METAL and KINGDEE INTL go up and down completely randomly.
Pair Corralation between SIMS METAL and KINGDEE INTL
Assuming the 90 days trading horizon SIMS METAL MGT is expected to under-perform the KINGDEE INTL. But the stock apears to be less risky and, when comparing its historical volatility, SIMS METAL MGT is 2.15 times less risky than KINGDEE INTL. The stock trades about -0.03 of its potential returns per unit of risk. The KINGDEE INTL SOFTWA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest 106.00 in KINGDEE INTL SOFTWA on September 12, 2024 and sell it today you would earn a total of 20.00 from holding KINGDEE INTL SOFTWA or generate 18.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
SIMS METAL MGT vs. KINGDEE INTL SOFTWA
Performance |
| Timeline |
| SIMS METAL MGT |
| KINGDEE INTL SOFTWA |
SIMS METAL and KINGDEE INTL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SIMS METAL and KINGDEE INTL
The main advantage of trading using opposite SIMS METAL and KINGDEE INTL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SIMS METAL position performs unexpectedly, KINGDEE INTL 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 KINGDEE INTL will offset losses from the drop in KINGDEE INTL's long position.The idea behind SIMS METAL MGT and KINGDEE INTL SOFTWA 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.| KINGDEE INTL vs. SIMS METAL MGT | KINGDEE INTL vs. LION ONE METALS | KINGDEE INTL vs. Japan Post Insurance | KINGDEE INTL vs. Direct Line Insurance |
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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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