Correlation Between Dycom Industries and Sterling Construction

Can any of the company-specific risk be diversified away by investing in both Dycom 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 Dycom 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 Dycom Industries and Sterling Construction, you can compare the effects of market volatilities on Dycom 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 Dycom Industries with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dycom Industries and Sterling Construction.

Diversification Opportunities for Dycom Industries and Sterling Construction

0.18

Correlation Coefficient

Dycom Industries  Sterling Construction

Average diversification

The 3 months correlation between Dycom and Sterling is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Dycom Industries and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Dycom 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 Dycom 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 Dycom Industries i.e., Dycom Industries and Sterling Construction go up and down completely randomly.

Pair Corralation between Dycom Industries and Sterling Construction

Allowing for the 90-day total investment horizon Dycom Industries is expected to generate 0.56 times more return on investment than Sterling Construction. However, Dycom Industries is 1.8 times less risky than Sterling Construction. It trades about -0.02 of its potential returns per unit of risk. Sterling Construction is currently generating about -0.2 per unit of risk. If you would invest  18,116  in Dycom Industries on November 28, 2024 and sell it today you would lose (922.00) from holding Dycom Industries or give up 5.09% of portfolio value over 90 days.

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

Dycom Industries  vs.  Sterling Construction

Dycom Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dycom Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Dycom Industries is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

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 unsteady performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in March 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Dycom Industries and Sterling Construction

The main advantage of trading using opposite Dycom Industries and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dycom 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 Dycom 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.