Correlation Between Construction Partners and IES Holdings

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

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

Diversification Opportunities for Construction Partners and IES Holdings

0.94

Correlation Coefficient

Construction Partners  IES Holdings

Almost no diversification

The 3 months correlation between Construction and IES is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Construction Partners and IES Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IES Holdings 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 IES Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IES Holdings has no effect on the direction of Construction Partners i.e., Construction Partners and IES Holdings go up and down completely randomly.

Pair Corralation between Construction Partners and IES Holdings

Given the investment horizon of 90 days Construction Partners is expected to generate 1.04 times less return on investment than IES Holdings. But when comparing it to its historical volatility, Construction Partners is 1.1 times less risky than IES Holdings. It trades about 0.21 of its potential returns per unit of risk. IES Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  18,653  in IES Holdings on August 30, 2024 and sell it today you would earn a total of  10,042  from holding IES Holdings or generate 53.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Construction Partners  vs.  IES Holdings

Construction Partners

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Construction Partners are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Construction Partners exhibited solid returns over the last few months and may actually be approaching a breakup point.

IES Holdings

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IES Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, IES Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Construction Partners and IES Holdings

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

The idea behind Construction Partners and IES Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.