Correlation Between Tokyu Construction and Sterling Construction

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

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

Diversification Opportunities for Tokyu Construction and Sterling Construction

0.5

Correlation Coefficient

Tokyu Construction  Sterling Construction

Very weak diversification

The 3 months correlation between Tokyu and Sterling is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Tokyu Construction Co and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Tokyu 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 Tokyu Construction Co are associated (or correlated) with Sterling Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Construction has no effect on the direction of Tokyu Construction i.e., Tokyu Construction and Sterling Construction go up and down completely randomly.

Pair Corralation between Tokyu Construction and Sterling Construction

Assuming the 90 days horizon Tokyu Construction is expected to generate 4.55 times less return on investment than Sterling Construction. But when comparing it to its historical volatility, Tokyu Construction Co is 4.14 times less risky than Sterling Construction. It trades about 0.13 of its potential returns per unit of risk. Sterling Construction is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  14,180  in Sterling Construction on October 24, 2024 and sell it today you would earn a total of  4,505  from holding Sterling Construction or generate 31.77% return on investment over 90 days.

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

Tokyu Construction Co  vs.  Sterling Construction

Tokyu Construction

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tokyu Construction Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Tokyu Construction may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Sterling Construction

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Sterling Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tokyu Construction and Sterling Construction

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

The idea behind Tokyu Construction Co and Sterling Construction 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.