Correlation Between Sterling Construction and GigaMedia
Can any of the company-specific risk be diversified away by investing in both Sterling Construction and GigaMedia 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 GigaMedia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sterling Construction and GigaMedia, you can compare the effects of market volatilities on Sterling Construction and GigaMedia 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 GigaMedia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sterling Construction and GigaMedia.
Diversification Opportunities for Sterling Construction and GigaMedia
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Sterling and GigaMedia is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and GigaMedia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GigaMedia 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 GigaMedia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GigaMedia has no effect on the direction of Sterling Construction i.e., Sterling Construction and GigaMedia go up and down completely randomly.
Pair Corralation between Sterling Construction and GigaMedia
Assuming the 90 days horizon Sterling Construction is expected to generate 2.8 times more return on investment than GigaMedia. However, Sterling Construction is 2.8 times more volatile than GigaMedia. It trades about 0.28 of its potential returns per unit of risk. GigaMedia is currently generating about 0.22 per unit of risk. 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 | 100.0% |
| Values | Daily Returns |
Sterling Construction vs. GigaMedia
Performance |
| Timeline |
| Sterling Construction |
| GigaMedia |
Sterling Construction and GigaMedia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sterling Construction and GigaMedia
The main advantage of trading using opposite Sterling Construction and GigaMedia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sterling Construction position performs unexpectedly, GigaMedia 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 GigaMedia will offset losses from the drop in GigaMedia's long position.| Sterling Construction vs. Larsen Toubro Limited | Sterling Construction vs. Superior Plus Corp | Sterling Construction vs. NMI Holdings | Sterling Construction vs. Origin Agritech |
| GigaMedia vs. Charter Communications | GigaMedia vs. COMBA TELECOM SYST | GigaMedia vs. Singapore Telecommunications Limited | GigaMedia vs. QUEEN S ROAD |
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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