Correlation Between Australian Agricultural and Sterling Construction

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

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

Diversification Opportunities for Australian Agricultural and Sterling Construction

-0.46

Correlation Coefficient

Australian Agricultural  Sterling Construction

Very good diversification

The 3 months correlation between Australian and Sterling is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Australian Agricultural 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 Australian Agricultural 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 Australian Agricultural i.e., Australian Agricultural and Sterling Construction go up and down completely randomly.

Pair Corralation between Australian Agricultural and Sterling Construction

Assuming the 90 days horizon Australian Agricultural is expected to under-perform the Sterling Construction. But the stock apears to be less risky and, when comparing its historical volatility, Australian Agricultural is 1.54 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 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,040  in Sterling Construction on September 19, 2024 and sell it today you would earn a total of  13,770  from holding Sterling Construction or generate 452.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Australian Agricultural  vs.  Sterling Construction

Australian Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

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

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Sterling Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Australian Agricultural and Sterling Construction

The main advantage of trading using opposite Australian Agricultural and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Agricultural 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 Australian Agricultural 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.