Correlation Between Carsales and SIMS METAL

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Can any of the company-specific risk be diversified away by investing in both Carsales 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 Carsales and SIMS METAL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Carsales and SIMS METAL MGT, you can compare the effects of market volatilities on Carsales 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 Carsales with a short position of SIMS METAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Carsales and SIMS METAL.

Diversification Opportunities for Carsales and SIMS METAL

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Carsales and SIMS is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and SIMS METAL MGT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMS METAL MGT and Carsales 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 Carsales 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 MGT has no effect on the direction of Carsales i.e., Carsales and SIMS METAL go up and down completely randomly.

Pair Corralation between Carsales and SIMS METAL

Assuming the 90 days trading horizon Carsales is expected to generate 3.37 times less return on investment than SIMS METAL. But when comparing it to its historical volatility, Carsales is 1.64 times less risky than SIMS METAL. It trades about 0.07 of its potential returns per unit of risk. SIMS METAL MGT is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  646.00  in SIMS METAL MGT on September 12, 2024 and sell it today you would earn a total of  149.00  from holding SIMS METAL MGT or generate 23.07% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Carsales  vs.  SIMS METAL MGT

 Performance 
       Timeline  
Carsales 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Carsales are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Carsales may actually be approaching a critical reversion point that can send shares even higher in January 2025.
SIMS METAL MGT 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in SIMS METAL MGT are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, SIMS METAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Carsales and SIMS METAL Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Carsales and SIMS METAL

The main advantage of trading using opposite Carsales and SIMS METAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales 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 Carsales and SIMS METAL MGT 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.
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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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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