Correlation Between North American and Sterling Construction
Can any of the company-specific risk be diversified away by investing in both North 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 North 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 North American Construction and Sterling Construction, you can compare the effects of market volatilities on North 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 North American with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Sterling Construction.
Diversification Opportunities for North American and Sterling Construction
0.44 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between North and Sterling is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and North 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 North American 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 North American i.e., North American and Sterling Construction go up and down completely randomly.
Pair Corralation between North American and Sterling Construction
Assuming the 90 days horizon North American is expected to generate 3.5 times less return on investment than Sterling Construction. But when comparing it to its historical volatility, North American Construction is 1.11 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 0.13 of returns per unit of risk over similar time horizon. If you would invest 3,000 in Sterling Construction on August 24, 2024 and sell it today you would earn a total of 14,910 from holding Sterling Construction or generate 497.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Construction vs. Sterling Construction
Performance |
| Timeline |
| North American Const |
| Sterling Construction |
North American and Sterling Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Sterling Construction
The main advantage of trading using opposite North American and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North 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.| North American vs. ELMOS SEMICONDUCTOR | North American vs. Sumitomo Mitsui Construction | North American vs. Magnachip Semiconductor | North American vs. Tower Semiconductor |
| Sterling Construction vs. UET United Electronic | Sterling Construction vs. Scientific Games | Sterling Construction vs. BORR DRILLING NEW | Sterling Construction vs. AOI Electronics Co |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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