Correlation Between Overlay Shares and Sterling Capital

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

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

Diversification Opportunities for Overlay Shares and Sterling Capital

0.94

Correlation Coefficient

Overlay Shares  Sterling Capital

Almost no diversification

The 3 months correlation between Overlay and Sterling is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Overlay Shares Hedged and Sterling Capital Focus in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Focus and Overlay Shares 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 Overlay Shares Hedged are associated (or correlated) with Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Focus has no effect on the direction of Overlay Shares i.e., Overlay Shares and Sterling Capital go up and down completely randomly.

Pair Corralation between Overlay Shares and Sterling Capital

Given the investment horizon of 90 days Overlay Shares Hedged is expected to generate 0.48 times more return on investment than Sterling Capital. However, Overlay Shares Hedged is 2.07 times less risky than Sterling Capital. It trades about -0.2 of its potential returns per unit of risk. Sterling Capital Focus is currently generating about -0.23 per unit of risk. If you would invest  3,496  in Overlay Shares Hedged on October 4, 2024 and sell it today you would lose (87.00) from holding Overlay Shares Hedged or give up 2.49% of portfolio value over 90 days.

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

Overlay Shares Hedged  vs.  Sterling Capital Focus

Overlay Shares Hedged

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Overlay Shares Hedged are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong essential indicators, Overlay Shares is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Sterling Capital Focus

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Overlay Shares and Sterling Capital

The main advantage of trading using opposite Overlay Shares and Sterling Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Overlay Shares position performs unexpectedly, Sterling Capital 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 Capital will offset losses from the drop in Sterling Capital's long position.

The idea behind Overlay Shares Hedged and Sterling Capital Focus 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 Commodity Directory module to find actively traded commodities issued by global exchanges.