Correlation Between Granite Construction and Zimmer Biomet

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

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

Diversification Opportunities for Granite Construction and Zimmer Biomet

0.93

Correlation Coefficient

Granite Construction  Zimmer Biomet

Almost no diversification

The 3 months correlation between Granite and Zimmer is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Granite Construction and Zimmer Biomet Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zimmer Biomet Holdings 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 Zimmer Biomet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zimmer Biomet Holdings has no effect on the direction of Granite Construction i.e., Granite Construction and Zimmer Biomet go up and down completely randomly.

Pair Corralation between Granite Construction and Zimmer Biomet

Assuming the 90 days trading horizon Granite Construction is expected to generate 1.53 times more return on investment than Zimmer Biomet. However, Granite Construction is 1.53 times more volatile than Zimmer Biomet Holdings. It trades about 0.16 of its potential returns per unit of risk. Zimmer Biomet Holdings is currently generating about 0.07 per unit of risk. If you would invest  7,189  in Granite Construction on October 10, 2024 and sell it today you would earn a total of  1,411  from holding Granite Construction or generate 19.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.33%
Values	Daily Returns

Granite Construction  vs.  Zimmer Biomet Holdings

Granite Construction

Risk-Adjusted Performance

12 of 100

Good

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 unfluctuating basic indicators, Granite Construction unveiled solid returns over the last few months and may actually be approaching a breakup point.

Zimmer Biomet Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zimmer Biomet Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Zimmer Biomet is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Granite Construction and Zimmer Biomet

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

The idea behind Granite Construction and Zimmer Biomet Holdings 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.