Correlation Between Johnson Controls and Sterling Construction

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

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

Diversification Opportunities for Johnson Controls and Sterling Construction

0.95

Correlation Coefficient

Johnson Controls  Sterling Construction

Almost no diversification

The 3 months correlation between Johnson and Sterling is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Johnson Controls International and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction and Johnson Controls 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 Johnson Controls International 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 Johnson Controls i.e., Johnson Controls and Sterling Construction go up and down completely randomly.

Pair Corralation between Johnson Controls and Sterling Construction

Assuming the 90 days trading horizon Johnson Controls International is expected to generate 0.5 times more return on investment than Sterling Construction. However, Johnson Controls International is 2.0 times less risky than Sterling Construction. It trades about -0.11 of its potential returns per unit of risk. Sterling Construction is currently generating about -0.2 per unit of risk. If you would invest  7,911  in Johnson Controls International on September 26, 2024 and sell it today you would lose (252.00) from holding Johnson Controls International or give up 3.19% of portfolio value over 90 days.

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

Johnson Controls International  vs.  Sterling Construction

Johnson Controls Int

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Controls International are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, Johnson Controls 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 uncertain basic indicators, Sterling Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Johnson Controls and Sterling Construction

The main advantage of trading using opposite Johnson Controls and Sterling Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Johnson Controls 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 Johnson Controls International 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.