Correlation Between Sterling Construction and Great Lakes

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

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

Diversification Opportunities for Sterling Construction and Great Lakes

0.89

Correlation Coefficient

Sterling Construction  Great Lakes

Very poor diversification

The 3 months correlation between Sterling and Great is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and Great Lakes Dredge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Lakes Dredge 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 Great Lakes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Lakes Dredge has no effect on the direction of Sterling Construction i.e., Sterling Construction and Great Lakes go up and down completely randomly.

Pair Corralation between Sterling Construction and Great Lakes

Given the investment horizon of 90 days Sterling Construction is expected to generate 1.16 times more return on investment than Great Lakes. However, Sterling Construction is 1.16 times more volatile than Great Lakes Dredge. It trades about 0.09 of its potential returns per unit of risk. Great Lakes Dredge is currently generating about 0.06 per unit of risk. If you would invest  3,990  in Sterling Construction on November 20, 2024 and sell it today you would earn a total of  9,250  from holding Sterling Construction or generate 231.83% return on investment over 90 days.

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

Sterling Construction  vs.  Great Lakes Dredge

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.

Great Lakes Dredge

Risk-Adjusted Performance

Very Weak

Over the last 90 days Great Lakes Dredge has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Sterling Construction and Great Lakes

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

The idea behind Sterling Construction and Great Lakes Dredge 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.