Correlation Between SPORTING and Sterling Construction

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

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

Diversification Opportunities for SPORTING and Sterling Construction

-0.35

Correlation Coefficient

SPORTING  Sterling Construction

Very good diversification

The 3 months correlation between SPORTING and Sterling is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding SPORTING and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and SPORTING 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 SPORTING 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 SPORTING i.e., SPORTING and Sterling Construction go up and down completely randomly.

Pair Corralation between SPORTING and Sterling Construction

Assuming the 90 days trading horizon SPORTING is expected to under-perform the Sterling Construction. In addition to that, SPORTING is 1.2 times more volatile than Sterling Construction. It trades about -0.01 of its total potential returns per unit of risk. Sterling Construction is currently generating about 0.34 per unit of volatility. If you would invest  11,735  in Sterling Construction on April 20, 2025 and sell it today you would earn a total of  9,915  from holding Sterling Construction or generate 84.49% return on investment over 90 days.

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

SPORTING  vs.  Sterling Construction

SPORTING

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPORTING has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, SPORTING is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Sterling Construction

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 26 (%) 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.

Pair Trading with SPORTING and Sterling Construction

The main advantage of trading using opposite SPORTING and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPORTING 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 SPORTING 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.