Correlation Between Value Line and Sterling Capital

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

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

Diversification Opportunities for Value Line and Sterling Capital

0.63

Correlation Coefficient

Value Line  Sterling Capital

Poor diversification

The 3 months correlation between Value and Sterling is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Value Line Small and Sterling Capital Stratton in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Capital Stratton and Value Line 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 Value Line Small are associated (or correlated) with Sterling Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Capital Stratton has no effect on the direction of Value Line i.e., Value Line and Sterling Capital go up and down completely randomly.

Pair Corralation between Value Line and Sterling Capital

Assuming the 90 days horizon Value Line Small is expected to generate 0.57 times more return on investment than Sterling Capital. However, Value Line Small is 1.74 times less risky than Sterling Capital. It trades about 0.06 of its potential returns per unit of risk. Sterling Capital Stratton is currently generating about -0.02 per unit of risk. If you would invest  4,577  in Value Line Small on October 12, 2024 and sell it today you would earn a total of  1,411  from holding Value Line Small or generate 30.83% return on investment over 90 days.

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

Value Line Small  vs.  Sterling Capital Stratton

Value Line Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Value Line Small has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Value Line is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sterling Capital Stratton

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sterling Capital Stratton has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Value Line and Sterling Capital

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

The idea behind Value Line Small and Sterling Capital Stratton 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.