Correlation Between Granite Construction and Topbuild Corp

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

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

Diversification Opportunities for Granite Construction and Topbuild Corp

-0.37

Correlation Coefficient

Granite Construction  Topbuild Corp

Very good diversification

The 3 months correlation between Granite and Topbuild is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Granite Construction Incorpora and Topbuild Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Topbuild Corp and Granite 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 Granite Construction Incorporated are associated (or correlated) with Topbuild Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Topbuild Corp has no effect on the direction of Granite Construction i.e., Granite Construction and Topbuild Corp go up and down completely randomly.

Pair Corralation between Granite Construction and Topbuild Corp

Considering the 90-day investment horizon Granite Construction Incorporated is expected to generate 0.55 times more return on investment than Topbuild Corp. However, Granite Construction Incorporated is 1.81 times less risky than Topbuild Corp. It trades about 0.31 of its potential returns per unit of risk. Topbuild Corp is currently generating about 0.01 per unit of risk. If you would invest  7,504  in Granite Construction Incorporated on August 30, 2024 and sell it today you would earn a total of  2,365  from holding Granite Construction Incorporated or generate 31.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Granite Construction Incorpora  vs.  Topbuild Corp

Granite Construction

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction Incorporated are ranked lower than 24 (%) 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.

Topbuild Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Topbuild Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Topbuild Corp is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Granite Construction and Topbuild Corp

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

The idea behind Granite Construction Incorporated and Topbuild Corp 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 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.