Correlation Between Federal Agricultural and Granite Construction

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Can any of the company-specific risk be diversified away by investing in both Federal Agricultural and Granite 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 Federal Agricultural and Granite Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Federal Agricultural Mortgage and Granite Construction, you can compare the effects of market volatilities on Federal Agricultural and Granite 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 Federal Agricultural with a short position of Granite Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Agricultural and Granite Construction.

Diversification Opportunities for Federal Agricultural and Granite Construction

0.95
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Federal and Granite is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and Granite Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction and Federal Agricultural 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 Federal Agricultural Mortgage are associated (or correlated) with Granite Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Granite Construction has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and Granite Construction go up and down completely randomly.

Pair Corralation between Federal Agricultural and Granite Construction

Assuming the 90 days horizon Federal Agricultural is expected to generate 1.69 times less return on investment than Granite Construction. In addition to that, Federal Agricultural is 1.02 times more volatile than Granite Construction. It trades about 0.16 of its total potential returns per unit of risk. Granite Construction is currently generating about 0.28 per unit of volatility. If you would invest  6,488  in Granite Construction on September 10, 2024 and sell it today you would earn a total of  2,712  from holding Granite Construction or generate 41.8% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Federal Agricultural Mortgage  vs.  Granite Construction

 Performance 
       Timeline  
Federal Agricultural 

Risk-Adjusted Performance

12 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.
Granite Construction 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Granite Construction unveiled solid returns over the last few months and may actually be approaching a breakup point.

Federal Agricultural and Granite Construction Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Federal Agricultural and Granite Construction

The main advantage of trading using opposite Federal Agricultural and Granite Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural position performs unexpectedly, Granite 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 Granite Construction will offset losses from the drop in Granite Construction's long position.
The idea behind Federal Agricultural Mortgage and Granite 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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