Correlation Between Sterling Construction and Royal Caribbean

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

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

Diversification Opportunities for Sterling Construction and Royal Caribbean

0.96

Correlation Coefficient

Sterling Construction  Royal Caribbean

Almost no diversification

The 3 months correlation between Sterling and Royal is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and Royal Caribbean Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Caribbean Group 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 Royal Caribbean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Caribbean Group has no effect on the direction of Sterling Construction i.e., Sterling Construction and Royal Caribbean go up and down completely randomly.

Pair Corralation between Sterling Construction and Royal Caribbean

Assuming the 90 days horizon Sterling Construction is expected to generate 1.68 times more return on investment than Royal Caribbean. However, Sterling Construction is 1.68 times more volatile than Royal Caribbean Group. It trades about 0.2 of its potential returns per unit of risk. Royal Caribbean Group is currently generating about 0.34 per unit of risk. If you would invest  11,520  in Sterling Construction on September 15, 2024 and sell it today you would earn a total of  5,990  from holding Sterling Construction or generate 52.0% return on investment over 90 days.

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

Sterling Construction  vs.  Royal Caribbean Group

Sterling Construction

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 16 (%) 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.

Royal Caribbean Group

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Group are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Royal Caribbean reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sterling Construction and Royal Caribbean

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

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