Correlation Between SIMS METAL and CHAMPION IRON

Can any of the company-specific risk be diversified away by investing in both SIMS METAL and CHAMPION IRON 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 CHAMPION IRON 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 CHAMPION IRON, you can compare the effects of market volatilities on SIMS METAL and CHAMPION IRON 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 CHAMPION IRON. Check out your portfolio center. Please also check ongoing floating volatility patterns of SIMS METAL and CHAMPION IRON.

Diversification Opportunities for SIMS METAL and CHAMPION IRON

0.54

Correlation Coefficient

SIMS METAL  CHAMPION IRON

Very weak diversification

The 3 months correlation between SIMS and CHAMPION is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and CHAMPION IRON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHAMPION IRON 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 CHAMPION IRON. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHAMPION IRON has no effect on the direction of SIMS METAL i.e., SIMS METAL and CHAMPION IRON go up and down completely randomly.

Pair Corralation between SIMS METAL and CHAMPION IRON

Assuming the 90 days trading horizon SIMS METAL is expected to generate 1.09 times less return on investment than CHAMPION IRON. But when comparing it to its historical volatility, SIMS METAL MGT is 1.74 times less risky than CHAMPION IRON. It trades about 0.16 of its potential returns per unit of risk. CHAMPION IRON is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  236.00  in CHAMPION IRON on April 24, 2025 and sell it today you would earn a total of  36.00  from holding CHAMPION IRON or generate 15.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

SIMS METAL MGT  vs.  CHAMPION IRON

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.

CHAMPION IRON

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHAMPION IRON are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHAMPION IRON reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIMS METAL and CHAMPION IRON

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

The idea behind SIMS METAL MGT and CHAMPION IRON 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.