Correlation Between COFACE SA and Sterling Construction

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

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

Diversification Opportunities for COFACE SA and Sterling Construction

-0.41

Correlation Coefficient

COFACE SA  Sterling Construction

Very good diversification

The 3 months correlation between COFACE and Sterling is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding COFACE SA and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and COFACE SA 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 COFACE SA 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 COFACE SA i.e., COFACE SA and Sterling Construction go up and down completely randomly.

Pair Corralation between COFACE SA and Sterling Construction

Assuming the 90 days horizon COFACE SA is expected to generate 0.43 times more return on investment than Sterling Construction. However, COFACE SA is 2.35 times less risky than Sterling Construction. It trades about -0.3 of its potential returns per unit of risk. Sterling Construction is currently generating about -0.18 per unit of risk. If you would invest  1,472  in COFACE SA on September 24, 2024 and sell it today you would lose (98.00) from holding COFACE SA or give up 6.66% of portfolio value over 90 days.

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

COFACE SA  vs.  Sterling Construction

COFACE SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days COFACE SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, COFACE SA 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

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 10 (%) 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 COFACE SA and Sterling Construction

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

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.