Correlation Between Granite Construction and WESTERN DIGITAL

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

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

Diversification Opportunities for Granite Construction and WESTERN DIGITAL

0.45

Correlation Coefficient

Granite Construction  WESTERN DIGITAL

Very weak diversification

The 3 months correlation between Granite and WESTERN is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Granite Construction and WESTERN DIGITAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WESTERN DIGITAL 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 WESTERN DIGITAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WESTERN DIGITAL has no effect on the direction of Granite Construction i.e., Granite Construction and WESTERN DIGITAL go up and down completely randomly.

Pair Corralation between Granite Construction and WESTERN DIGITAL

Assuming the 90 days trading horizon Granite Construction is expected to generate 0.82 times more return on investment than WESTERN DIGITAL. However, Granite Construction is 1.22 times less risky than WESTERN DIGITAL. It trades about 0.1 of its potential returns per unit of risk. WESTERN DIGITAL is currently generating about 0.06 per unit of risk. If you would invest  3,522  in Granite Construction on October 10, 2024 and sell it today you would earn a total of  5,078  from holding Granite Construction or generate 144.18% 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.  WESTERN DIGITAL

Granite Construction

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Granite Construction unveiled solid returns over the last few months and may actually be approaching a breakup point.

WESTERN DIGITAL

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in WESTERN DIGITAL are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, WESTERN DIGITAL may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Granite Construction and WESTERN DIGITAL

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

The idea behind Granite Construction and WESTERN DIGITAL 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.