Correlation Between Sterling Construction and Newtek Business

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

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

Diversification Opportunities for Sterling Construction and Newtek Business

0.71

Correlation Coefficient

Sterling Construction  Newtek Business

Poor diversification

The 3 months correlation between Sterling and Newtek is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and Newtek Business Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newtek Business Services 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 Newtek Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newtek Business Services has no effect on the direction of Sterling Construction i.e., Sterling Construction and Newtek Business go up and down completely randomly.

Pair Corralation between Sterling Construction and Newtek Business

Assuming the 90 days horizon Sterling Construction is expected to generate 2.55 times more return on investment than Newtek Business. However, Sterling Construction is 2.55 times more volatile than Newtek Business Services. It trades about 0.21 of its potential returns per unit of risk. Newtek Business Services is currently generating about -0.05 per unit of risk. If you would invest  16,435  in Sterling Construction on October 26, 2024 and sell it today you would earn a total of  2,330  from holding Sterling Construction or generate 14.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.74%
Values	Daily Returns

Sterling Construction  vs.  Newtek Business Services

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.

Newtek Business Services

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Newtek Business Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Newtek Business is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sterling Construction and Newtek Business

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

The idea behind Sterling Construction and Newtek Business Services 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.