Correlation Between Sterling Construction and Chongqing Machinery
Can any of the company-specific risk be diversified away by investing in both Sterling Construction and Chongqing Machinery 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 Sterling Construction and Chongqing Machinery into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sterling Construction and Chongqing Machinery Electric, you can compare the effects of market volatilities on Sterling Construction and Chongqing Machinery 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 Sterling Construction with a short position of Chongqing Machinery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sterling Construction and Chongqing Machinery.
Diversification Opportunities for Sterling Construction and Chongqing Machinery
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Sterling and Chongqing is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and Chongqing Machinery Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chongqing Machinery and Sterling Construction 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 Sterling Construction are associated (or correlated) with Chongqing Machinery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chongqing Machinery has no effect on the direction of Sterling Construction i.e., Sterling Construction and Chongqing Machinery go up and down completely randomly.
Pair Corralation between Sterling Construction and Chongqing Machinery
Assuming the 90 days horizon Sterling Construction is expected to generate 0.79 times more return on investment than Chongqing Machinery. However, Sterling Construction is 1.26 times less risky than Chongqing Machinery. It trades about 0.16 of its potential returns per unit of risk. Chongqing Machinery Electric is currently generating about 0.04 per unit of risk. If you would invest 5,750 in Sterling Construction on August 27, 2024 and sell it today you would earn a total of 13,005 from holding Sterling Construction or generate 226.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sterling Construction vs. Chongqing Machinery Electric
Performance |
| Timeline |
| Sterling Construction |
| Chongqing Machinery |
Sterling Construction and Chongqing Machinery Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sterling Construction and Chongqing Machinery
The main advantage of trading using opposite Sterling Construction and Chongqing Machinery positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sterling Construction position performs unexpectedly, Chongqing Machinery 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 Chongqing Machinery will offset losses from the drop in Chongqing Machinery's long position.| Sterling Construction vs. China Railway Group | Sterling Construction vs. China Railway Construction | Sterling Construction vs. AECOM | Sterling Construction vs. Superior Plus Corp |
| Chongqing Machinery vs. Superior Plus Corp | Chongqing Machinery vs. NMI Holdings | Chongqing Machinery vs. Origin Agritech | Chongqing Machinery vs. SIVERS SEMICONDUCTORS AB |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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