Correlation Between Sterling Construction and SIDETRADE

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

By analyzing existing cross correlation between Sterling Construction and SIDETRADE EO 1, you can compare the effects of market volatilities on Sterling Construction and SIDETRADE 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 SIDETRADE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sterling Construction and SIDETRADE.

Diversification Opportunities for Sterling Construction and SIDETRADE

0.01

Correlation Coefficient

Sterling Construction  SIDETRADE

Significant diversification

The 3 months correlation between Sterling and SIDETRADE is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and SIDETRADE EO 1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIDETRADE EO 1 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 SIDETRADE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIDETRADE EO 1 has no effect on the direction of Sterling Construction i.e., Sterling Construction and SIDETRADE go up and down completely randomly.

Pair Corralation between Sterling Construction and SIDETRADE

Assuming the 90 days horizon Sterling Construction is expected to generate 2.51 times more return on investment than SIDETRADE. However, Sterling Construction is 2.51 times more volatile than SIDETRADE EO 1. It trades about 0.11 of its potential returns per unit of risk. SIDETRADE EO 1 is currently generating about -0.02 per unit of risk. If you would invest  14,480  in Sterling Construction on October 23, 2024 and sell it today you would earn a total of  3,270  from holding Sterling Construction or generate 22.58% return on investment over 90 days.

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

Sterling Construction  vs.  SIDETRADE EO 1

Sterling Construction

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 8 (%) 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.

SIDETRADE EO 1

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SIDETRADE EO 1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, SIDETRADE 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 SIDETRADE

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

The idea behind Sterling Construction and SIDETRADE EO 1 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.