Correlation Between China Communications and Sterling Construction
Can any of the company-specific risk be diversified away by investing in both China Communications 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 Communications 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 Communications Construction and Sterling Construction, you can compare the effects of market volatilities on China Communications 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 Communications with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Communications and Sterling Construction.
Diversification Opportunities for China Communications and Sterling Construction
0.74 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Sterling is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding China Communications Construct and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and China Communications 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 Communications 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 Communications i.e., China Communications and Sterling Construction go up and down completely randomly.
Pair Corralation between China Communications and Sterling Construction
Assuming the 90 days horizon China Communications Construction is expected to generate 2.38 times more return on investment than Sterling Construction. However, China Communications is 2.38 times more volatile than Sterling Construction. It trades about 0.07 of its potential returns per unit of risk. Sterling Construction is currently generating about 0.13 per unit of risk. If you would invest 11.00 in China Communications Construction on September 3, 2024 and sell it today you would earn a total of 50.00 from holding China Communications Construction or generate 454.55% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Communications Construct vs. Sterling Construction
Performance |
| Timeline |
| China Communications |
| Sterling Construction |
China Communications and Sterling Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Communications and Sterling Construction
The main advantage of trading using opposite China Communications and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Communications 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 Communications vs. ALGOMA STEEL GROUP | China Communications vs. GFL ENVIRONM | China Communications vs. Astral Foods Limited | China Communications vs. CosmoSteel Holdings Limited |
| Sterling Construction vs. Larsen Toubro Limited | Sterling Construction vs. China Railway Group | Sterling Construction vs. China Communications Construction | 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 Transaction History module to view history of all your transactions and understand their impact on performance.
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