Correlation Between Granite Construction and Great Lakes

Can any of the company-specific risk be diversified away by investing in both Granite Construction and Great Lakes 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 Great Lakes 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 Great Lakes Dredge, you can compare the effects of market volatilities on Granite Construction and Great Lakes 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 Great Lakes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Granite Construction and Great Lakes.

Diversification Opportunities for Granite Construction and Great Lakes

0.85

Correlation Coefficient

Granite Construction  Great Lakes

Very poor diversification

The 3 months correlation between Granite and Great is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Granite Construction Incorpora and Great Lakes Dredge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Lakes Dredge 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 Great Lakes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Lakes Dredge has no effect on the direction of Granite Construction i.e., Granite Construction and Great Lakes go up and down completely randomly.

Pair Corralation between Granite Construction and Great Lakes

Considering the 90-day investment horizon Granite Construction Incorporated is expected to generate 0.65 times more return on investment than Great Lakes. However, Granite Construction Incorporated is 1.53 times less risky than Great Lakes. It trades about 0.38 of its potential returns per unit of risk. Great Lakes Dredge is currently generating about 0.23 per unit of risk. 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

Granite Construction Incorpora  vs.  Great Lakes Dredge

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.

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.

Pair Trading with Granite Construction and Great Lakes

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

The idea behind Granite Construction Incorporated and Great Lakes Dredge 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.