Correlation Between Granite Construction and Gamma Communications

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

By analyzing existing cross correlation between Granite Construction and Gamma Communications plc, you can compare the effects of market volatilities on Granite Construction and Gamma Communications 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 Gamma Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Granite Construction and Gamma Communications.

Diversification Opportunities for Granite Construction and Gamma Communications

-0.04

Correlation Coefficient

Granite Construction  Gamma Communications

Good diversification

The 3 months correlation between Granite and Gamma is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Granite Construction and Gamma Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gamma Communications plc 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 are associated (or correlated) with Gamma Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gamma Communications plc has no effect on the direction of Granite Construction i.e., Granite Construction and Gamma Communications go up and down completely randomly.

Pair Corralation between Granite Construction and Gamma Communications

Assuming the 90 days trading horizon Granite Construction is expected to generate 1.01 times more return on investment than Gamma Communications. However, Granite Construction is 1.01 times more volatile than Gamma Communications plc. It trades about 0.2 of its potential returns per unit of risk. Gamma Communications plc is currently generating about 0.07 per unit of risk. If you would invest  5,577  in Granite Construction on September 2, 2024 and sell it today you would earn a total of  3,673  from holding Granite Construction or generate 65.86% return on investment over 90 days.

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

Granite Construction  vs.  Gamma Communications plc

Granite Construction

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Granite Construction unveiled solid returns over the last few months and may actually be approaching a breakup point.

Gamma Communications plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Gamma Communications plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gamma Communications may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Granite Construction and Gamma Communications

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

The idea behind Granite Construction and Gamma Communications plc 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.