Correlation Between Sterling Construction and SIMS METAL
Can any of the company-specific risk be diversified away by investing in both Sterling Construction and SIMS METAL 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 SIMS METAL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sterling Construction and SIMS METAL MGT, you can compare the effects of market volatilities on Sterling Construction and SIMS METAL 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 SIMS METAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sterling Construction and SIMS METAL.
Diversification Opportunities for Sterling Construction and SIMS METAL
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sterling and SIMS is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and SIMS METAL MGT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMS METAL MGT 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 SIMS METAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMS METAL MGT has no effect on the direction of Sterling Construction i.e., Sterling Construction and SIMS METAL go up and down completely randomly.
Pair Corralation between Sterling Construction and SIMS METAL
Assuming the 90 days horizon Sterling Construction is expected to generate 1.68 times more return on investment than SIMS METAL. However, Sterling Construction is 1.68 times more volatile than SIMS METAL MGT. It trades about 0.29 of its potential returns per unit of risk. SIMS METAL MGT is currently generating about 0.11 per unit of risk. If you would invest 13,880 in Sterling Construction on September 4, 2024 and sell it today you would earn a total of 4,430 from holding Sterling Construction or generate 31.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sterling Construction vs. SIMS METAL MGT
Performance |
| Timeline |
| Sterling Construction |
| SIMS METAL MGT |
Sterling Construction and SIMS METAL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sterling Construction and SIMS METAL
The main advantage of trading using opposite Sterling Construction and SIMS METAL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sterling Construction position performs unexpectedly, SIMS METAL 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 SIMS METAL will offset losses from the drop in SIMS METAL's long position.| Sterling Construction vs. Larsen Toubro Limited | Sterling Construction vs. China Railway Group | Sterling Construction vs. China Communications Construction | Sterling Construction vs. Superior Plus Corp |
| SIMS METAL vs. Sterling Construction | SIMS METAL vs. National Storage Affiliates | SIMS METAL vs. Chongqing Machinery Electric | SIMS METAL vs. Pure Storage |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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