Correlation Between Innovate Corp and Sterling Construction

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

By analyzing existing cross correlation between Innovate Corp and Sterling Construction, you can compare the effects of market volatilities on Innovate Corp and Sterling Construction 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 Innovate Corp with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Innovate Corp and Sterling Construction.

Diversification Opportunities for Innovate Corp and Sterling Construction

0.4

Correlation Coefficient

Innovate Corp  Sterling Construction

Very weak diversification

The 3 months correlation between Innovate and Sterling is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Innovate Corp and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Innovate Corp 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 Innovate Corp are associated (or correlated) with Sterling Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Construction has no effect on the direction of Innovate Corp i.e., Innovate Corp and Sterling Construction go up and down completely randomly.

Pair Corralation between Innovate Corp and Sterling Construction

Given the investment horizon of 90 days Innovate Corp is expected to generate 1.13 times less return on investment than Sterling Construction. In addition to that, Innovate Corp is 2.39 times more volatile than Sterling Construction. It trades about 0.12 of its total potential returns per unit of risk. Sterling Construction is currently generating about 0.32 per unit of volatility. If you would invest  10,706  in Sterling Construction on September 2, 2024 and sell it today you would earn a total of  8,739  from holding Sterling Construction or generate 81.63% return on investment over 90 days.

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

Innovate Corp  vs.  Sterling Construction

Innovate Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Innovate Corp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Innovate Corp exhibited solid returns over the last few months and may actually be approaching a breakup point.

Sterling Construction

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady basic indicators, Sterling Construction disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Innovate Corp and Sterling Construction

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

The idea behind Innovate Corp and Sterling Construction 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .