Correlation Between Sterling Construction and EMCOR

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

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

Diversification Opportunities for Sterling Construction and EMCOR

0.98

Correlation Coefficient

Sterling Construction  EMCOR

Almost no diversification

The 3 months correlation between Sterling and EMCOR is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group 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 EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of Sterling Construction i.e., Sterling Construction and EMCOR go up and down completely randomly.

Pair Corralation between Sterling Construction and EMCOR

Given the investment horizon of 90 days Sterling Construction is expected to generate 1.59 times more return on investment than EMCOR. However, Sterling Construction is 1.59 times more volatile than EMCOR Group. It trades about 0.25 of its potential returns per unit of risk. EMCOR Group is currently generating about 0.2 per unit of risk. If you would invest  11,953  in Sterling Construction on August 30, 2024 and sell it today you would earn a total of  7,588  from holding Sterling Construction or generate 63.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Sterling Construction  vs.  EMCOR Group

Sterling Construction

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite quite sluggish basic indicators, Sterling Construction disclosed solid returns over the last few months and may actually be approaching a breakup point.

EMCOR Group

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EMCOR Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, EMCOR exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sterling Construction and EMCOR

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

The idea behind Sterling Construction and EMCOR Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.