Correlation Between Johnson Controls and Sterling Construction
Can any of the company-specific risk be diversified away by investing in both Johnson Controls 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 Johnson Controls and Sterling Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Johnson Controls International and Sterling Construction, you can compare the effects of market volatilities on Johnson Controls 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 Johnson Controls with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Johnson Controls and Sterling Construction.
Diversification Opportunities for Johnson Controls and Sterling Construction
0.97 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Johnson and Sterling is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Johnson Controls 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 Johnson Controls International 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 Johnson Controls i.e., Johnson Controls and Sterling Construction go up and down completely randomly.
Pair Corralation between Johnson Controls and Sterling Construction
Assuming the 90 days trading horizon Johnson Controls is expected to generate 2.34 times less return on investment than Sterling Construction. But when comparing it to its historical volatility, Johnson Controls International is 2.3 times less risky than Sterling Construction. It trades about 0.27 of its potential returns per unit of risk. Sterling Construction is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest 14,125 in Sterling Construction on September 1, 2024 and sell it today you would earn a total of 4,185 from holding Sterling Construction or generate 29.63% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Johnson Controls International vs. Sterling Construction
Performance |
| Timeline |
| Johnson Controls Int |
| Sterling Construction |
Johnson Controls and Sterling Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Johnson Controls and Sterling Construction
The main advantage of trading using opposite Johnson Controls and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Controls 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.| Johnson Controls vs. Larsen Toubro Limited | Johnson Controls vs. Superior Plus Corp | Johnson Controls vs. NMI Holdings | Johnson Controls vs. Origin Agritech |
| Sterling Construction vs. Larsen Toubro Limited | Sterling Construction vs. Superior Plus Corp | Sterling Construction vs. NMI Holdings | Sterling Construction vs. Origin Agritech |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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