Correlation Between Sims Metal and Microsoft
Can any of the company-specific risk be diversified away by investing in both Sims Metal and Microsoft 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 Microsoft 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 Microsoft, you can compare the effects of market volatilities on Sims Metal and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sims Metal and Microsoft.
Diversification Opportunities for Sims Metal and Microsoft
-0.16 | Correlation Coefficient |
Good diversification
The 3 months correlation between Sims and Microsoft is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Sims Metal i.e., Sims Metal and Microsoft go up and down completely randomly.
Pair Corralation between Sims Metal and Microsoft
Assuming the 90 days horizon Sims Metal is expected to generate 11.99 times less return on investment than Microsoft. In addition to that, Sims Metal is 1.62 times more volatile than Microsoft. It trades about 0.0 of its total potential returns per unit of risk. Microsoft is currently generating about 0.07 per unit of volatility. If you would invest 40,065 in Microsoft on October 30, 2024 and sell it today you would earn a total of 1,230 from holding Microsoft or generate 3.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sims Metal Management vs. Microsoft
Performance |
| Timeline |
| Sims Metal Management |
| Microsoft |
Sims Metal and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sims Metal and Microsoft
The main advantage of trading using opposite Sims Metal and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sims Metal position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| Sims Metal vs. Nucor | Sims Metal vs. ArcelorMittal SA | Sims Metal vs. ArcelorMittal | Sims Metal vs. Steel Dynamics |
| Microsoft vs. DFS Furniture PLC | Microsoft vs. PACIFIC ONLINE | Microsoft vs. HAVERTY FURNITURE A | Microsoft vs. ADDUS HOMECARE |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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