Correlation Between Granite Construction and Endesa SA

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

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

Diversification Opportunities for Granite Construction and Endesa SA

0.4

Correlation Coefficient

Granite Construction  Endesa SA

Very weak diversification

The 3 months correlation between Granite and Endesa is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Granite Construction and Endesa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA 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 Endesa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endesa SA has no effect on the direction of Granite Construction i.e., Granite Construction and Endesa SA go up and down completely randomly.

Pair Corralation between Granite Construction and Endesa SA

Assuming the 90 days trading horizon Granite Construction is expected to generate 2.02 times more return on investment than Endesa SA. However, Granite Construction is 2.02 times more volatile than Endesa SA. It trades about 0.17 of its potential returns per unit of risk. Endesa SA is currently generating about 0.16 per unit of risk. If you would invest  7,439  in Granite Construction on October 25, 2024 and sell it today you would earn a total of  1,611  from holding Granite Construction or generate 21.66% return on investment over 90 days.

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

Granite Construction  vs.  Endesa SA

Granite Construction

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Granite Construction unveiled solid returns over the last few months and may actually be approaching a breakup point.

Endesa SA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Endesa SA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Granite Construction and Endesa SA

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

The idea behind Granite Construction and Endesa SA 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.