Correlation Between Australian Agricultural and Granite Construction

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

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

Diversification Opportunities for Australian Agricultural and Granite Construction

-0.48

Correlation Coefficient

Australian Agricultural  Granite Construction

Very good diversification

The 3 months correlation between Australian and Granite is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Australian Agricultural and Granite Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction and Australian Agricultural 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 Australian Agricultural 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 Australian Agricultural i.e., Australian Agricultural and Granite Construction go up and down completely randomly.

Pair Corralation between Australian Agricultural and Granite Construction

Assuming the 90 days horizon Australian Agricultural is expected to generate 26.03 times less return on investment than Granite Construction. But when comparing it to its historical volatility, Australian Agricultural is 1.04 times less risky than Granite Construction. It trades about 0.0 of its potential returns per unit of risk. Granite Construction is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,659  in Granite Construction on December 4, 2024 and sell it today you would earn a total of  4,041  from holding Granite Construction or generate 110.44% return on investment over 90 days.

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

Australian Agricultural  vs.  Granite Construction

Australian Agricultural

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Australian Agricultural are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Australian Agricultural may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Granite Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Granite Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Australian Agricultural and Granite Construction

The main advantage of trading using opposite Australian Agricultural and Granite Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Australian Agricultural 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 Australian Agricultural 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.