Correlation Between KBR and Sterling Construction
Can any of the company-specific risk be diversified away by investing in both KBR 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 KBR and Sterling Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between KBR Inc and Sterling Construction, you can compare the effects of market volatilities on KBR 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 KBR with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of KBR and Sterling Construction.
Diversification Opportunities for KBR and Sterling Construction
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between KBR and Sterling is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding KBR Inc and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and KBR 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 KBR Inc 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 KBR i.e., KBR and Sterling Construction go up and down completely randomly.
Pair Corralation between KBR and Sterling Construction
Considering the 90-day investment horizon KBR is expected to generate 11.85 times less return on investment than Sterling Construction. But when comparing it to its historical volatility, KBR Inc is 2.12 times less risky than Sterling Construction. It trades about 0.02 of its potential returns per unit of risk. Sterling Construction is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 3,671 in Sterling Construction on November 2, 2024 and sell it today you would earn a total of 11,000 from holding Sterling Construction or generate 299.65% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
KBR Inc vs. Sterling Construction
Performance |
| Timeline |
| KBR Inc |
| Sterling Construction |
KBR and Sterling Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with KBR and Sterling Construction
The main advantage of trading using opposite KBR and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KBR 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.The idea behind KBR Inc and Sterling Construction pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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