Correlation Between Sterling Construction and United Airlines

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

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

Diversification Opportunities for Sterling Construction and United Airlines

0.88

Correlation Coefficient

Sterling Construction  United Airlines

Very poor diversification

The 3 months correlation between Sterling and United is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Sterling Construction i.e., Sterling Construction and United Airlines go up and down completely randomly.

Pair Corralation between Sterling Construction and United Airlines

Assuming the 90 days horizon Sterling Construction is expected to generate 2.13 times less return on investment than United Airlines. In addition to that, Sterling Construction is 1.34 times more volatile than United Airlines Holdings. It trades about 0.05 of its total potential returns per unit of risk. United Airlines Holdings is currently generating about 0.14 per unit of volatility. If you would invest  8,074  in United Airlines Holdings on October 7, 2024 and sell it today you would earn a total of  1,092  from holding United Airlines Holdings or generate 13.52% return on investment over 90 days.

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

Sterling Construction  vs.  United Airlines Holdings

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.

United Airlines Holdings

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Airlines Holdings are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, United Airlines reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sterling Construction and United Airlines

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

The idea behind Sterling Construction and United Airlines Holdings 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.