Correlation Between Granite Construction and Direct Line

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

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

Diversification Opportunities for Granite Construction and Direct Line

-0.66

Correlation Coefficient

Granite Construction  Direct Line

Excellent diversification

The 3 months correlation between Granite and Direct is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Granite Construction and Direct Line Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Line Insurance 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 Direct Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Line Insurance has no effect on the direction of Granite Construction i.e., Granite Construction and Direct Line go up and down completely randomly.

Pair Corralation between Granite Construction and Direct Line

Assuming the 90 days trading horizon Granite Construction is expected to under-perform the Direct Line. In addition to that, Granite Construction is 1.25 times more volatile than Direct Line Insurance. It trades about -0.22 of its total potential returns per unit of risk. Direct Line Insurance is currently generating about 0.17 per unit of volatility. If you would invest  296.00  in Direct Line Insurance on December 5, 2024 and sell it today you would earn a total of  40.00  from holding Direct Line Insurance or generate 13.51% return on investment over 90 days.

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

Granite Construction  vs.  Direct Line Insurance

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 fragile 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.

Direct Line Insurance

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Direct Line Insurance are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile essential indicators, Direct Line reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Granite Construction and Direct Line

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

The idea behind Granite Construction and Direct Line Insurance 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.