Correlation Between Toromont Industries and Sterling Construction

Can any of the company-specific risk be diversified away by investing in both Toromont Industries 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 Toromont Industries and Sterling Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Toromont Industries and Sterling Construction, you can compare the effects of market volatilities on Toromont Industries 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 Toromont Industries with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Toromont Industries and Sterling Construction.

Diversification Opportunities for Toromont Industries and Sterling Construction

-0.69

Correlation Coefficient

Toromont Industries  Sterling Construction

Excellent diversification

The 3 months correlation between Toromont and Sterling is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Toromont Industries and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Toromont Industries 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 Toromont Industries 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 Toromont Industries i.e., Toromont Industries and Sterling Construction go up and down completely randomly.

Pair Corralation between Toromont Industries and Sterling Construction

Assuming the 90 days horizon Toromont Industries is expected to under-perform the Sterling Construction. But the stock apears to be less risky and, when comparing its historical volatility, Toromont Industries is 1.33 times less risky than Sterling Construction. The stock trades about -0.02 of its potential returns per unit of risk. The Sterling Construction is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  14,020  in Sterling Construction on October 25, 2024 and sell it today you would earn a total of  5,190  from holding Sterling Construction or generate 37.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Toromont Industries  vs.  Sterling Construction

Toromont Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toromont Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Toromont Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Sterling Construction

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sterling Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Toromont Industries and Sterling Construction

The main advantage of trading using opposite Toromont Industries and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toromont Industries 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.

The idea behind Toromont Industries and Sterling Construction pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.