Correlation Between InterContinental and Sterling Construction

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

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

Diversification Opportunities for InterContinental and Sterling Construction

0.93

Correlation Coefficient

InterContinental  Sterling Construction

Almost no diversification

The 3 months correlation between InterContinental and Sterling is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding InterContinental Hotels Group and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and InterContinental 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 InterContinental Hotels Group 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 InterContinental i.e., InterContinental and Sterling Construction go up and down completely randomly.

Pair Corralation between InterContinental and Sterling Construction

Assuming the 90 days trading horizon InterContinental Hotels Group is expected to generate 0.64 times more return on investment than Sterling Construction. However, InterContinental Hotels Group is 1.56 times less risky than Sterling Construction. It trades about 0.08 of its potential returns per unit of risk. Sterling Construction is currently generating about -0.18 per unit of risk. If you would invest  11,700  in InterContinental Hotels Group on September 24, 2024 and sell it today you would earn a total of  300.00  from holding InterContinental Hotels Group or generate 2.56% return on investment over 90 days.

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

InterContinental Hotels Group  vs.  Sterling Construction

InterContinental Hotels

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in InterContinental Hotels Group are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, InterContinental reported solid returns over the last few months and may actually be approaching a breakup point.

Sterling Construction

Risk-Adjusted Performance

10 of 100

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.

Pair Trading with InterContinental and Sterling Construction

The main advantage of trading using opposite InterContinental and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InterContinental 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 InterContinental Hotels Group 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.