Correlation Between Sterling Construction and Yancoal Australia
Can any of the company-specific risk be diversified away by investing in both Sterling Construction and Yancoal Australia 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 Yancoal Australia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sterling Construction and Yancoal Australia, you can compare the effects of market volatilities on Sterling Construction and Yancoal Australia 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 Yancoal Australia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sterling Construction and Yancoal Australia.
Diversification Opportunities for Sterling Construction and Yancoal Australia
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sterling and Yancoal is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and Yancoal Australia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yancoal Australia 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 Yancoal Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yancoal Australia has no effect on the direction of Sterling Construction i.e., Sterling Construction and Yancoal Australia go up and down completely randomly.
Pair Corralation between Sterling Construction and Yancoal Australia
Assuming the 90 days horizon Sterling Construction is expected to generate 1.04 times more return on investment than Yancoal Australia. However, Sterling Construction is 1.04 times more volatile than Yancoal Australia. It trades about 0.14 of its potential returns per unit of risk. Yancoal Australia is currently generating about 0.04 per unit of risk. If you would invest 9,294 in Sterling Construction on September 3, 2024 and sell it today you would earn a total of 9,016 from holding Sterling Construction or generate 97.01% 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. Yancoal Australia
Performance |
| Timeline |
| Sterling Construction |
| Yancoal Australia |
Sterling Construction and Yancoal Australia Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sterling Construction and Yancoal Australia
The main advantage of trading using opposite Sterling Construction and Yancoal Australia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sterling Construction position performs unexpectedly, Yancoal Australia 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 Yancoal Australia will offset losses from the drop in Yancoal Australia'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 |
| Yancoal Australia vs. STORE ELECTRONIC | Yancoal Australia vs. American Public Education | Yancoal Australia vs. EMBARK EDUCATION LTD | Yancoal Australia vs. DEVRY EDUCATION GRP |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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