Correlation Between British American and Sterling Construction
Can any of the company-specific risk be diversified away by investing in both British American 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 British American and Sterling Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Sterling Construction, you can compare the effects of market volatilities on British American 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 British American with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Sterling Construction.
Diversification Opportunities for British American and Sterling Construction
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between British and Sterling is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and British American 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 British American Tobacco 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 British American i.e., British American and Sterling Construction go up and down completely randomly.
Pair Corralation between British American and Sterling Construction
Assuming the 90 days trading horizon British American is expected to generate 7.42 times less return on investment than Sterling Construction. But when comparing it to its historical volatility, British American Tobacco is 2.76 times less risky than Sterling Construction. It trades about 0.04 of its potential returns per unit of risk. Sterling Construction is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,440 in Sterling Construction on October 30, 2024 and sell it today you would earn a total of 14,120 from holding Sterling Construction or generate 410.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Sterling Construction
Performance |
| Timeline |
| British American Tobacco |
| Sterling Construction |
British American and Sterling Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Sterling Construction
The main advantage of trading using opposite British American and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American 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.| British American vs. Unity Software | British American vs. Kingdee International Software | British American vs. Constellation Software | British American vs. Universal Display |
| Sterling Construction vs. Japan Medical Dynamic | Sterling Construction vs. CEOTRONICS | Sterling Construction vs. LANDSEA GREEN MANAGEMENT | Sterling Construction vs. Marie Brizard Wine |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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