Correlation Between Construction Partners and Sterling Construction

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

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

Diversification Opportunities for Construction Partners and Sterling Construction

0.91

Correlation Coefficient

Construction Partners  Sterling Construction

Almost no diversification

The 3 months correlation between Construction and Sterling is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Construction Partners and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Construction Partners 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 Construction Partners 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 Construction Partners i.e., Construction Partners and Sterling Construction go up and down completely randomly.

Pair Corralation between Construction Partners and Sterling Construction

Given the investment horizon of 90 days Construction Partners is expected to generate 0.69 times more return on investment than Sterling Construction. However, Construction Partners is 1.44 times less risky than Sterling Construction. It trades about -0.02 of its potential returns per unit of risk. Sterling Construction is currently generating about -0.03 per unit of risk. If you would invest  8,712  in Construction Partners on January 10, 2025 and sell it today you would lose (800.00) from holding Construction Partners or give up 9.18% of portfolio value over 90 days.

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

Construction Partners  vs.  Sterling Construction

Construction Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Construction Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Construction Partners is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Sterling Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sterling Construction has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Construction Partners and Sterling Construction

The main advantage of trading using opposite Construction Partners and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Construction Partners 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 Construction Partners 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.