Correlation Between EMCOR and Granite Construction

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

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

Diversification Opportunities for EMCOR and Granite Construction

0.84

Correlation Coefficient

EMCOR  Granite Construction

Very poor diversification

The 3 months correlation between EMCOR and Granite is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding EMCOR Group and Granite Construction Incorpora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction and EMCOR 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 EMCOR Group 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 EMCOR i.e., EMCOR and Granite Construction go up and down completely randomly.

Pair Corralation between EMCOR and Granite Construction

Considering the 90-day investment horizon EMCOR Group is expected to generate 2.16 times more return on investment than Granite Construction. However, EMCOR is 2.16 times more volatile than Granite Construction Incorporated. It trades about -0.08 of its potential returns per unit of risk. Granite Construction Incorporated is currently generating about -0.2 per unit of risk. If you would invest  50,987  in EMCOR Group on November 28, 2024 and sell it today you would lose (8,899) from holding EMCOR Group or give up 17.45% of portfolio value over 90 days.

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

EMCOR Group  vs.  Granite Construction Incorpora

EMCOR Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days EMCOR Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Granite Construction

Risk-Adjusted Performance

Very Weak

Over the last 90 days Granite Construction Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with EMCOR and Granite Construction

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