Correlation Between Hitachi Construction and Granite Construction

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

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

Diversification Opportunities for Hitachi Construction and Granite Construction

-0.41

Correlation Coefficient

Hitachi Construction  Granite Construction

Very good diversification

The 3 months correlation between Hitachi and Granite is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Hitachi Construction Machinery and Granite Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction and Hitachi 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 Hitachi Construction Machinery 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 Hitachi Construction i.e., Hitachi Construction and Granite Construction go up and down completely randomly.

Pair Corralation between Hitachi Construction and Granite Construction

Assuming the 90 days horizon Hitachi Construction is expected to generate 6.75 times less return on investment than Granite Construction. But when comparing it to its historical volatility, Hitachi Construction Machinery is 1.04 times less risky than Granite Construction. It trades about 0.05 of its potential returns per unit of risk. Granite Construction is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  6,388  in Granite Construction on September 6, 2024 and sell it today you would earn a total of  3,062  from holding Granite Construction or generate 47.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Hitachi Construction Machinery  vs.  Granite Construction

Hitachi Construction

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hitachi Construction Machinery are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Hitachi Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Granite Construction

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Granite Construction unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hitachi Construction and Granite Construction

The main advantage of trading using opposite Hitachi Construction and Granite Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hitachi Construction 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 Hitachi Construction Machinery 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.