Correlation Between Sterling Construction and China Pacific

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

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

Diversification Opportunities for Sterling Construction and China Pacific

-0.72

Correlation Coefficient

Sterling Construction  China Pacific

Pay attention - limited upside

The 3 months correlation between Sterling and China is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and China Pacific Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Pacific Insurance 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 China Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Pacific Insurance has no effect on the direction of Sterling Construction i.e., Sterling Construction and China Pacific go up and down completely randomly.

Pair Corralation between Sterling Construction and China Pacific

Assuming the 90 days horizon Sterling Construction is expected to generate 2.24 times less return on investment than China Pacific. But when comparing it to its historical volatility, Sterling Construction is 1.76 times less risky than China Pacific. It trades about 0.09 of its potential returns per unit of risk. China Pacific Insurance is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  95.00  in China Pacific Insurance on October 12, 2024 and sell it today you would earn a total of  183.00  from holding China Pacific Insurance or generate 192.63% return on investment over 90 days.

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

Sterling Construction  vs.  China Pacific Insurance

Sterling Construction

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sterling Construction reported solid returns over the last few months and may actually be approaching a breakup point.

China Pacific Insurance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Pacific Insurance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Sterling Construction and China Pacific

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

The idea behind Sterling Construction and China Pacific Insurance 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.