Correlation Between Energy Basic and Sterling Capital

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

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

Diversification Opportunities for Energy Basic and Sterling Capital

0.01

Correlation Coefficient

Energy Basic  Sterling Capital

Significant diversification

The 3 months correlation between Energy and Sterling is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Energy Basic Materials and Sterling Capital Porate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Porate and Energy Basic 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 Energy Basic Materials 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 Porate has no effect on the direction of Energy Basic i.e., Energy Basic and Sterling Capital go up and down completely randomly.

Pair Corralation between Energy Basic and Sterling Capital

Assuming the 90 days horizon Energy Basic Materials is expected to under-perform the Sterling Capital. In addition to that, Energy Basic is 1.18 times more volatile than Sterling Capital Porate. It trades about -0.39 of its total potential returns per unit of risk. Sterling Capital Porate is currently generating about 0.03 per unit of volatility. If you would invest  694.00  in Sterling Capital Porate on September 17, 2024 and sell it today you would earn a total of  2.00  from holding Sterling Capital Porate or generate 0.29% return on investment over 90 days.

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

Energy Basic Materials  vs.  Sterling Capital Porate

Energy Basic Materials

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy Basic Materials has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental drivers, Energy Basic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sterling Capital Porate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sterling Capital Porate has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Sterling Capital is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Energy Basic and Sterling Capital

The main advantage of trading using opposite Energy Basic and Sterling Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Basic 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 Energy Basic Materials and Sterling Capital Porate 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.