Correlation Between Sterling Construction and Bouygues

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

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

Diversification Opportunities for Sterling Construction and Bouygues

-0.62

Correlation Coefficient

Sterling Construction  Bouygues

Excellent diversification

The 3 months correlation between Sterling and Bouygues is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and Bouygues SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bouygues SA and Sterling Construction 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 Sterling Construction are associated (or correlated) with Bouygues. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bouygues SA has no effect on the direction of Sterling Construction i.e., Sterling Construction and Bouygues go up and down completely randomly.

Pair Corralation between Sterling Construction and Bouygues

Given the investment horizon of 90 days Sterling Construction is expected to under-perform the Bouygues. In addition to that, Sterling Construction is 2.29 times more volatile than Bouygues SA. It trades about -0.1 of its total potential returns per unit of risk. Bouygues SA is currently generating about 0.23 per unit of volatility. If you would invest  2,956  in Bouygues SA on December 30, 2024 and sell it today you would earn a total of  884.00  from holding Bouygues SA or generate 29.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	91.94%
Values	Daily Returns

Sterling Construction  vs.  Bouygues SA

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 April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Bouygues SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bouygues SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Bouygues reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sterling Construction and Bouygues

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

The idea behind Sterling Construction and Bouygues SA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.