Correlation Between SHIN-ETSU CHEMICAL and Sterling Construction

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

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

Diversification Opportunities for SHIN-ETSU CHEMICAL and Sterling Construction

-0.48

Correlation Coefficient

SHIN-ETSU CHEMICAL  Sterling Construction

Very good diversification

The 3 months correlation between SHIN-ETSU and Sterling is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding SHIN ETSU CHEMICAL and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and SHIN-ETSU CHEMICAL 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 SHIN ETSU CHEMICAL 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 SHIN-ETSU CHEMICAL i.e., SHIN-ETSU CHEMICAL and Sterling Construction go up and down completely randomly.

Pair Corralation between SHIN-ETSU CHEMICAL and Sterling Construction

Assuming the 90 days trading horizon SHIN ETSU CHEMICAL is expected to under-perform the Sterling Construction. But the stock apears to be less risky and, when comparing its historical volatility, SHIN ETSU CHEMICAL is 2.37 times less risky than Sterling Construction. The stock trades about -0.05 of its potential returns per unit of risk. The Sterling Construction is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  10,530  in Sterling Construction on September 12, 2024 and sell it today you would earn a total of  6,825  from holding Sterling Construction or generate 64.81% return on investment over 90 days.

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

SHIN ETSU CHEMICAL   vs.  Sterling Construction

SHIN ETSU CHEMICAL

Risk-Adjusted Performance

0 of 100

Very Weak

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

Sterling Construction

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 18 (%) 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 SHIN-ETSU CHEMICAL and Sterling Construction

The main advantage of trading using opposite SHIN-ETSU CHEMICAL and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SHIN-ETSU CHEMICAL 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 SHIN ETSU CHEMICAL 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.

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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.