Correlation Between Evolution Mining and Sterling Construction

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Can any of the company-specific risk be diversified away by investing in both Evolution Mining 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 Evolution Mining and Sterling Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Evolution Mining Limited and Sterling Construction, you can compare the effects of market volatilities on Evolution Mining 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 Evolution Mining with a short position of Sterling Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Evolution Mining and Sterling Construction.

Diversification Opportunities for Evolution Mining and Sterling Construction

0.3
  Correlation Coefficient

Weak diversification

The 3 months correlation between Evolution and Sterling is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Evolution Mining Limited and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Evolution Mining 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 Evolution Mining Limited 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 Evolution Mining i.e., Evolution Mining and Sterling Construction go up and down completely randomly.

Pair Corralation between Evolution Mining and Sterling Construction

Assuming the 90 days horizon Evolution Mining is expected to generate 2.99 times less return on investment than Sterling Construction. But when comparing it to its historical volatility, Evolution Mining Limited is 1.25 times less risky than Sterling Construction. It trades about 0.04 of its potential returns per unit of risk. Sterling Construction is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,000  in Sterling Construction on September 24, 2024 and sell it today you would earn a total of  8,910  from holding Sterling Construction or generate 111.38% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Evolution Mining Limited  vs.  Sterling Construction

 Performance 
       Timeline  
Evolution Mining 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Evolution Mining Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Evolution Mining is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.
Sterling Construction 

Risk-Adjusted Performance

10 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 10 (%) 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.

Evolution Mining and Sterling Construction Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Evolution Mining and Sterling Construction

The main advantage of trading using opposite Evolution Mining and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Evolution Mining 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 Evolution Mining Limited 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.
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.

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