Correlation Between China Railway and Sterling Construction
Can any of the company-specific risk be diversified away by investing in both China Railway 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 China Railway and Sterling Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Railway Construction and Sterling Construction, you can compare the effects of market volatilities on China Railway 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 China Railway with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Railway and Sterling Construction.
Diversification Opportunities for China Railway and Sterling Construction
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Sterling is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding China Railway Construction and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and China Railway 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 China Railway Construction 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 China Railway i.e., China Railway and Sterling Construction go up and down completely randomly.
Pair Corralation between China Railway and Sterling Construction
Assuming the 90 days horizon China Railway Construction is expected to under-perform the Sterling Construction. But the stock apears to be less risky and, when comparing its historical volatility, China Railway Construction is 4.55 times less risky than Sterling Construction. The stock trades about -0.28 of its potential returns per unit of risk. The Sterling Construction is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest 14,180 in Sterling Construction on August 25, 2024 and sell it today you would earn a total of 4,600 from holding Sterling Construction or generate 32.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
China Railway Construction vs. Sterling Construction
Performance |
| Timeline |
| China Railway Constr |
| Sterling Construction |
China Railway and Sterling Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Railway and Sterling Construction
The main advantage of trading using opposite China Railway and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Railway 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.| China Railway vs. Verizon Communications | China Railway vs. Consolidated Communications Holdings | China Railway vs. Axcelis Technologies | China Railway vs. Perseus Mining Limited |
| Sterling Construction vs. China Railway Group | Sterling Construction vs. China Railway Construction | Sterling Construction vs. AECOM | Sterling Construction vs. Superior Plus Corp |
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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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