Correlation Between Sterling Construction and TITAN MACHINERY

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

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

Diversification Opportunities for Sterling Construction and TITAN MACHINERY

0.77

Correlation Coefficient

Sterling Construction  TITAN MACHINERY

Poor diversification

The 3 months correlation between Sterling and TITAN is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Sterling Construction and TITAN MACHINERY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TITAN MACHINERY and Sterling Construction 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 Sterling Construction are associated (or correlated) with TITAN MACHINERY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TITAN MACHINERY has no effect on the direction of Sterling Construction i.e., Sterling Construction and TITAN MACHINERY go up and down completely randomly.

Pair Corralation between Sterling Construction and TITAN MACHINERY

Assuming the 90 days horizon Sterling Construction is expected to generate 1.18 times more return on investment than TITAN MACHINERY. However, Sterling Construction is 1.18 times more volatile than TITAN MACHINERY. It trades about 0.25 of its potential returns per unit of risk. TITAN MACHINERY is currently generating about 0.06 per unit of risk. If you would invest  10,650  in Sterling Construction on September 1, 2024 and sell it today you would earn a total of  7,660  from holding Sterling Construction or generate 71.92% return on investment over 90 days.

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

Sterling Construction  vs.  TITAN MACHINERY

Sterling Construction

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 19 (%) 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.

TITAN MACHINERY

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in TITAN MACHINERY are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, TITAN MACHINERY may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Sterling Construction and TITAN MACHINERY

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

The idea behind Sterling Construction and TITAN MACHINERY 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.