Correlation Between Sims Metal and Preferred Bank

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

Diversification Opportunities for Sims Metal and Preferred Bank

0.65

Correlation Coefficient

Sims Metal  Preferred Bank

Poor diversification

The 3 months correlation between Sims and Preferred is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and Preferred Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Preferred Bank 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 Preferred Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Preferred Bank has no effect on the direction of Sims Metal i.e., Sims Metal and Preferred Bank go up and down completely randomly.

Pair Corralation between Sims Metal and Preferred Bank

Assuming the 90 days horizon Sims Metal Management is expected to generate 0.73 times more return on investment than Preferred Bank. However, Sims Metal Management is 1.36 times less risky than Preferred Bank. It trades about 0.18 of its potential returns per unit of risk. Preferred Bank is currently generating about 0.1 per unit of risk. If you would invest  785.00  in Sims Metal Management on April 24, 2025 and sell it today you would earn a total of  120.00  from holding Sims Metal Management or generate 15.29% return on investment over 90 days.

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

Sims Metal Management  vs.  Preferred Bank

Sims Metal Management

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sims Metal Management are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sims Metal reported solid returns over the last few months and may actually be approaching a breakup point.

Preferred Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Preferred Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Preferred Bank may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Sims Metal and Preferred Bank

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

The idea behind Sims Metal Management and Preferred Bank 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.