Correlation Between Sims Metal and PRECISION DRILLING

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

Diversification Opportunities for Sims Metal and PRECISION DRILLING

0.59

Correlation Coefficient

Sims Metal  PRECISION DRILLING

Very weak diversification

The 3 months correlation between Sims and PRECISION is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Sims Metal Management and PRECISION DRILLING P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PRECISION DRILLING 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 PRECISION DRILLING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PRECISION DRILLING has no effect on the direction of Sims Metal i.e., Sims Metal and PRECISION DRILLING go up and down completely randomly.

Pair Corralation between Sims Metal and PRECISION DRILLING

Assuming the 90 days horizon Sims Metal is expected to generate 1.27 times less return on investment than PRECISION DRILLING. But when comparing it to its historical volatility, Sims Metal Management is 1.87 times less risky than PRECISION DRILLING. It trades about 0.18 of its potential returns per unit of risk. PRECISION DRILLING P is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,680  in PRECISION DRILLING P on April 24, 2025 and sell it today you would earn a total of  680.00  from holding PRECISION DRILLING P or generate 18.48% return on investment over 90 days.

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

Sims Metal Management  vs.  PRECISION DRILLING P

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.

PRECISION DRILLING

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PRECISION DRILLING P are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical and fundamental indicators, PRECISION DRILLING reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sims Metal and PRECISION DRILLING

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

The idea behind Sims Metal Management and PRECISION DRILLING P 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.