Correlation Between Sims Metal and IShares Physical

Can any of the company-specific risk be diversified away by investing in both Sims Metal and IShares Physical 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 IShares Physical 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 iShares Physical Metals, you can compare the effects of market volatilities on Sims Metal and IShares Physical 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 IShares Physical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sims Metal and IShares Physical.

Diversification Opportunities for Sims Metal and IShares Physical

0.84

Correlation Coefficient

Sims Metal  IShares Physical

Very poor diversification

The 3 months correlation between Sims and IShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and iShares Physical Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Physical Metals 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 IShares Physical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Physical Metals has no effect on the direction of Sims Metal i.e., Sims Metal and IShares Physical go up and down completely randomly.

Pair Corralation between Sims Metal and IShares Physical

Assuming the 90 days horizon Sims Metal Management is expected to under-perform the IShares Physical. In addition to that, Sims Metal is 2.96 times more volatile than iShares Physical Metals. It trades about -0.04 of its total potential returns per unit of risk. iShares Physical Metals is currently generating about 0.06 per unit of volatility. If you would invest  3,657  in iShares Physical Metals on January 24, 2024 and sell it today you would earn a total of  988.00  from holding iShares Physical Metals or generate 27.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	35.56%
Values	Daily Returns

Sims Metal Management  vs.  iShares Physical Metals

Sims Metal Management

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sims Metal Management has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, Sims Metal is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

iShares Physical Metals

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Physical Metals are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal primary indicators, IShares Physical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and IShares Physical

The main advantage of trading using opposite Sims Metal and IShares Physical positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sims Metal position performs unexpectedly, IShares Physical 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 IShares Physical will offset losses from the drop in IShares Physical's long position.

The idea behind Sims Metal Management and iShares Physical Metals 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.