Correlation Between WSP Global and Great Lakes

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

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

Diversification Opportunities for WSP Global and Great Lakes

0.47

Correlation Coefficient

WSP Global  Great Lakes

Very weak diversification

The 3 months correlation between WSP and Great is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding WSP Global 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 WSP Global 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 WSP Global 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 WSP Global i.e., WSP Global and Great Lakes go up and down completely randomly.

Pair Corralation between WSP Global and Great Lakes

Assuming the 90 days horizon WSP Global is expected to generate 5.56 times less return on investment than Great Lakes. But when comparing it to its historical volatility, WSP Global is 2.06 times less risky than Great Lakes. It trades about 0.08 of its potential returns per unit of risk. Great Lakes Dredge is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  984.00  in Great Lakes Dredge on September 13, 2024 and sell it today you would earn a total of  282.00  from holding Great Lakes Dredge or generate 28.66% return on investment over 90 days.

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

WSP Global  vs.  Great Lakes Dredge

WSP Global

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in WSP Global are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, WSP Global is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Great Lakes Dredge

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Great Lakes Dredge are ranked lower than 16 (%) 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 WSP Global and Great Lakes

The main advantage of trading using opposite WSP Global and Great Lakes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WSP Global 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 WSP Global 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.