Correlation Between Chongqing Machinery and Sterling Construction
Can any of the company-specific risk be diversified away by investing in both Chongqing Machinery 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 Chongqing Machinery and Sterling Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chongqing Machinery Electric and Sterling Construction, you can compare the effects of market volatilities on Chongqing Machinery 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 Chongqing Machinery with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chongqing Machinery and Sterling Construction.
Diversification Opportunities for Chongqing Machinery and Sterling Construction
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Chongqing and Sterling is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Chongqing Machinery Electric and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Chongqing Machinery 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 Chongqing Machinery Electric 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 Chongqing Machinery i.e., Chongqing Machinery and Sterling Construction go up and down completely randomly.
Pair Corralation between Chongqing Machinery and Sterling Construction
Assuming the 90 days horizon Chongqing Machinery is expected to generate 10.07 times less return on investment than Sterling Construction. But when comparing it to its historical volatility, Chongqing Machinery Electric is 2.06 times less risky than Sterling Construction. It trades about 0.05 of its potential returns per unit of risk. Sterling Construction is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest 14,385 in Sterling Construction on August 30, 2024 and sell it today you would earn a total of 3,990 from holding Sterling Construction or generate 27.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.65% |
| Values | Daily Returns |
Chongqing Machinery Electric vs. Sterling Construction
Performance |
| Timeline |
| Chongqing Machinery |
| Sterling Construction |
Chongqing Machinery and Sterling Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chongqing Machinery and Sterling Construction
The main advantage of trading using opposite Chongqing Machinery and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chongqing Machinery 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.| Chongqing Machinery vs. ABB | Chongqing Machinery vs. Superior Plus Corp | Chongqing Machinery vs. NMI Holdings | Chongqing Machinery vs. SIVERS SEMICONDUCTORS AB |
| Sterling Construction vs. QBE Insurance Group | Sterling Construction vs. HK Electric Investments | Sterling Construction vs. REVO INSURANCE SPA | Sterling Construction vs. The Hanover Insurance |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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