Correlation Between Sims Metal and China Pacific
Can any of the company-specific risk be diversified away by investing in both Sims Metal and China Pacific 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 China Pacific 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 China Pacific Insurance, you can compare the effects of market volatilities on Sims Metal and China Pacific 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 China Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sims Metal and China Pacific.
Diversification Opportunities for Sims Metal and China Pacific
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sims and China is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and China Pacific Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Pacific Insurance 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 China Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Pacific Insurance has no effect on the direction of Sims Metal i.e., Sims Metal and China Pacific go up and down completely randomly.
Pair Corralation between Sims Metal and China Pacific
Assuming the 90 days horizon Sims Metal Management is expected to under-perform the China Pacific. But the stock apears to be less risky and, when comparing its historical volatility, Sims Metal Management is 2.74 times less risky than China Pacific. The stock trades about -0.02 of its potential returns per unit of risk. The China Pacific Insurance is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 88.00 in China Pacific Insurance on September 14, 2024 and sell it today you would earn a total of 216.00 from holding China Pacific Insurance or generate 245.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sims Metal Management vs. China Pacific Insurance
Performance |
| Timeline |
| Sims Metal Management |
| China Pacific Insurance |
Sims Metal and China Pacific Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sims Metal and China Pacific
The main advantage of trading using opposite Sims Metal and China Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sims Metal position performs unexpectedly, China Pacific 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 China Pacific will offset losses from the drop in China Pacific's long position.| Sims Metal vs. ArcelorMittal | Sims Metal vs. NIPPON STEEL SPADR | Sims Metal vs. Reliance Steel Aluminum | Sims Metal vs. Superior Plus Corp |
| China Pacific vs. TSOGO SUN GAMING | China Pacific vs. SOFI TECHNOLOGIES | China Pacific vs. THORNEY TECHS LTD | China Pacific vs. Media and Games |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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