Correlation Between Sterling Construction and Alliance Data

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

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

Diversification Opportunities for Sterling Construction and Alliance Data

0.75

Correlation Coefficient

Sterling Construction  Alliance Data

Poor diversification

The 3 months correlation between Sterling and Alliance is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and Alliance Data Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliance Data Systems 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 Alliance Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliance Data Systems has no effect on the direction of Sterling Construction i.e., Sterling Construction and Alliance Data go up and down completely randomly.

Pair Corralation between Sterling Construction and Alliance Data

Assuming the 90 days horizon Sterling Construction is expected to under-perform the Alliance Data. In addition to that, Sterling Construction is 2.04 times more volatile than Alliance Data Systems. It trades about -0.09 of its total potential returns per unit of risk. Alliance Data Systems is currently generating about -0.16 per unit of volatility. If you would invest  5,932  in Alliance Data Systems on December 23, 2024 and sell it today you would lose (1,335) from holding Alliance Data Systems or give up 22.51% of portfolio value over 90 days.

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

Sterling Construction  vs.  Alliance Data Systems

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Alliance Data Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alliance Data Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Sterling Construction and Alliance Data

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

The idea behind Sterling Construction and Alliance Data Systems 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.