Correlation Between SIMS METAL and China Communications

Can any of the company-specific risk be diversified away by investing in both SIMS METAL and China Communications 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 Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SIMS METAL MGT and China Communications Services, you can compare the effects of market volatilities on SIMS METAL and China Communications 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 Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of SIMS METAL and China Communications.

Diversification Opportunities for SIMS METAL and China Communications

0.64

Correlation Coefficient

SIMS METAL  China Communications

Poor diversification

The 3 months correlation between SIMS and China is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and China Communications Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Communications 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 MGT are associated (or correlated) with China Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Communications has no effect on the direction of SIMS METAL i.e., SIMS METAL and China Communications go up and down completely randomly.

Pair Corralation between SIMS METAL and China Communications

Assuming the 90 days trading horizon SIMS METAL MGT is expected to generate 0.57 times more return on investment than China Communications. However, SIMS METAL MGT is 1.76 times less risky than China Communications. It trades about 0.16 of its potential returns per unit of risk. China Communications Services is currently generating about 0.08 per unit of risk. If you would invest  800.00  in SIMS METAL MGT on April 25, 2025 and sell it today you would earn a total of  125.00  from holding SIMS METAL MGT or generate 15.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

SIMS METAL MGT  vs.  China Communications Services

SIMS METAL MGT

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS METAL MGT are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, SIMS METAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

China Communications

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Communications Services are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, China Communications reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIMS METAL and China Communications

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

The idea behind SIMS METAL MGT and China Communications Services 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.