Correlation Between Sims Metal and KLA
Can any of the company-specific risk be diversified away by investing in both Sims Metal and KLA 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 KLA 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 KLA Corporation, you can compare the effects of market volatilities on Sims Metal and KLA 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 KLA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sims Metal and KLA.
Diversification Opportunities for Sims Metal and KLA
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Sims and KLA is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and KLA Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KLA Corporation 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 KLA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KLA Corporation has no effect on the direction of Sims Metal i.e., Sims Metal and KLA go up and down completely randomly.
Pair Corralation between Sims Metal and KLA
Assuming the 90 days horizon Sims Metal Management is expected to under-perform the KLA. But the stock apears to be less risky and, when comparing its historical volatility, Sims Metal Management is 1.06 times less risky than KLA. The stock trades about -0.07 of its potential returns per unit of risk. The KLA Corporation is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest 62,677 in KLA Corporation on August 28, 2024 and sell it today you would lose (977.00) from holding KLA Corporation or give up 1.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sims Metal Management vs. KLA Corp.
Performance |
| Timeline |
| Sims Metal Management |
| KLA Corporation |
Sims Metal and KLA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sims Metal and KLA
The main advantage of trading using opposite Sims Metal and KLA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sims Metal position performs unexpectedly, KLA 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 KLA will offset losses from the drop in KLA's long position.The idea behind Sims Metal Management and KLA Corporation 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.| KLA vs. Gaztransport Technigaz SA | KLA vs. Jupiter Fund Management | KLA vs. Transportadora de Gas | KLA vs. Sims Metal Management |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
Other Complementary Tools
| Portfolio File Import Quickly import all of your third-party portfolios from your local drive in csv format | |
| Portfolio Backtesting Avoid under-diversification and over-optimization by backtesting your portfolios | |
| Performance Analysis Check effects of mean-variance optimization against your current asset allocation | |
| Piotroski F Score Get Piotroski F Score based on the binary analysis strategy of nine different fundamentals | |
| Equity Valuation Check real value of public entities based on technical and fundamental data |