Correlation Between Energy Services and Sterling Construction
Can any of the company-specific risk be diversified away by investing in both Energy Services 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 Energy Services and Sterling Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Energy Services and Sterling Construction, you can compare the effects of market volatilities on Energy Services 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 Energy Services with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Services and Sterling Construction.
Diversification Opportunities for Energy Services and Sterling Construction
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Energy and Sterling is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Energy Services and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Energy Services 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 Energy Services 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 Energy Services i.e., Energy Services and Sterling Construction go up and down completely randomly.
Pair Corralation between Energy Services and Sterling Construction
Given the investment horizon of 90 days Energy Services is expected to generate 1.04 times more return on investment than Sterling Construction. However, Energy Services is 1.04 times more volatile than Sterling Construction. It trades about -0.18 of its potential returns per unit of risk. Sterling Construction is currently generating about -0.21 per unit of risk. If you would invest 1,302 in Energy Services on November 18, 2024 and sell it today you would lose (328.00) from holding Energy Services or give up 25.19% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Energy Services vs. Sterling Construction
Performance |
| Timeline |
| Energy Services |
| Sterling Construction |
Energy Services and Sterling Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Energy Services and Sterling Construction
The main advantage of trading using opposite Energy Services and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Services 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.| Energy Services vs. Bouygues SA | Energy Services vs. NV5 Global | Energy Services vs. Matrix Service Co | Energy Services vs. MYR Group |
| Sterling Construction vs. EMCOR Group | Sterling Construction vs. Comfort Systems USA | Sterling Construction vs. Primoris Services | Sterling Construction vs. Granite Construction Incorporated |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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