Correlation Between IES Holdings and Sterling Construction

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

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

Diversification Opportunities for IES Holdings and Sterling Construction

0.79

Correlation Coefficient

IES Holdings  Sterling Construction

Poor diversification

The 3 months correlation between IES and Sterling is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding IES Holdings and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and IES Holdings 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 IES Holdings 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 IES Holdings i.e., IES Holdings and Sterling Construction go up and down completely randomly.

Pair Corralation between IES Holdings and Sterling Construction

Given the investment horizon of 90 days IES Holdings is expected to under-perform the Sterling Construction. In addition to that, IES Holdings is 1.23 times more volatile than Sterling Construction. It trades about -0.13 of its total potential returns per unit of risk. Sterling Construction is currently generating about -0.15 per unit of volatility. If you would invest  19,445  in Sterling Construction on November 29, 2024 and sell it today you would lose (7,229) from holding Sterling Construction or give up 37.18% of portfolio value over 90 days.

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

IES Holdings  vs.  Sterling Construction

IES Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days IES Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

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 IES Holdings and Sterling Construction

The main advantage of trading using opposite IES Holdings and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IES Holdings 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 IES Holdings 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.