Correlation Between Great Lakes and Granite Construction

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

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

Diversification Opportunities for Great Lakes and Granite Construction

0.85

Correlation Coefficient

Great Lakes  Granite Construction

Very poor diversification

The 3 months correlation between Great and Granite is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Great Lakes Dredge and Granite Construction Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction and Great Lakes 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 Great Lakes Dredge 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 Great Lakes i.e., Great Lakes and Granite Construction go up and down completely randomly.

Pair Corralation between Great Lakes and Granite Construction

Given the investment horizon of 90 days Great Lakes is expected to generate 1.06 times less return on investment than Granite Construction. In addition to that, Great Lakes is 1.53 times more volatile than Granite Construction Incorporated. It trades about 0.23 of its total potential returns per unit of risk. Granite Construction Incorporated is currently generating about 0.38 per unit of volatility. If you would invest  7,258  in Granite Construction Incorporated on September 2, 2024 and sell it today you would earn a total of  2,679  from holding Granite Construction Incorporated or generate 36.91% return on investment over 90 days.

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

Great Lakes Dredge  vs.  Granite Construction Incorpora

Great Lakes Dredge

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Great Lakes Dredge are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Great Lakes exhibited solid returns over the last few months and may actually be approaching a breakup point.

Granite Construction

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction Incorporated are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Granite Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Great Lakes and Granite Construction

The main advantage of trading using opposite Great Lakes and Granite Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great Lakes 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 Great Lakes Dredge and Granite Construction Incorporated 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.