Correlation Between Auto Trader and Sterling Construction
Can any of the company-specific risk be diversified away by investing in both Auto Trader and Sterling Construction 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 Auto Trader and Sterling Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Auto Trader Group and Sterling Construction, you can compare the effects of market volatilities on Auto Trader and Sterling Construction 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 Auto Trader with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Auto Trader and Sterling Construction.
Diversification Opportunities for Auto Trader and Sterling Construction
-0.52 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Auto and Sterling is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Auto Trader Group and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Auto Trader 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 Auto Trader Group are associated (or correlated) with Sterling Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Construction has no effect on the direction of Auto Trader i.e., Auto Trader and Sterling Construction go up and down completely randomly.
Pair Corralation between Auto Trader and Sterling Construction
Assuming the 90 days trading horizon Auto Trader Group is expected to under-perform the Sterling Construction. But the stock apears to be less risky and, when comparing its historical volatility, Auto Trader Group is 2.29 times less risky than Sterling Construction. The stock trades about -0.03 of its potential returns per unit of risk. The Sterling Construction is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 14,125 in Sterling Construction on September 1, 2024 and sell it today you would earn a total of 4,185 from holding Sterling Construction or generate 29.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Auto Trader Group vs. Sterling Construction
Performance |
| Timeline |
| Auto Trader Group |
| Sterling Construction |
Auto Trader and Sterling Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Auto Trader and Sterling Construction
The main advantage of trading using opposite Auto Trader and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Auto Trader position performs unexpectedly, Sterling Construction 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 Sterling Construction will offset losses from the drop in Sterling Construction's long position.| Auto Trader vs. FORMPIPE SOFTWARE AB | Auto Trader vs. UNITED UTILITIES GR | Auto Trader vs. COPLAND ROAD CAPITAL | Auto Trader vs. Algonquin Power Utilities |
| Sterling Construction vs. Larsen Toubro Limited | Sterling Construction vs. Superior Plus Corp | Sterling Construction vs. NMI Holdings | Sterling Construction vs. Origin Agritech |
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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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