Correlation Between Broadridge Financial and Sterling Construction

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

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

Diversification Opportunities for Broadridge Financial and Sterling Construction

-0.59

Correlation Coefficient

Broadridge Financial  Sterling Construction

Excellent diversification

The 3 months correlation between Broadridge and Sterling is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Broadridge Financial Solutions and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Broadridge Financial 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 Broadridge Financial Solutions 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 Broadridge Financial i.e., Broadridge Financial and Sterling Construction go up and down completely randomly.

Pair Corralation between Broadridge Financial and Sterling Construction

Assuming the 90 days horizon Broadridge Financial is expected to generate 2.2 times less return on investment than Sterling Construction. But when comparing it to its historical volatility, Broadridge Financial Solutions is 2.7 times less risky than Sterling Construction. It trades about 0.11 of its potential returns per unit of risk. Sterling Construction is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,560  in Sterling Construction on December 4, 2024 and sell it today you would earn a total of  7,905  from holding Sterling Construction or generate 222.05% return on investment over 90 days.

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

Broadridge Financial Solutions  vs.  Sterling Construction

Broadridge Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Broadridge Financial Solutions are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Broadridge Financial is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Sterling Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sterling Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Broadridge Financial and Sterling Construction

The main advantage of trading using opposite Broadridge Financial and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Broadridge Financial 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 Broadridge Financial Solutions 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.