Correlation Between Granite Construction and Quanta Services

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

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

Diversification Opportunities for Granite Construction and Quanta Services

0.89

Correlation Coefficient

Granite Construction  Quanta Services

Very poor diversification

The 3 months correlation between Granite and Quanta is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Granite Construction Incorpora and Quanta Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quanta Services 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 Incorporated are associated (or correlated) with Quanta Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quanta Services has no effect on the direction of Granite Construction i.e., Granite Construction and Quanta Services go up and down completely randomly.

Pair Corralation between Granite Construction and Quanta Services

Considering the 90-day investment horizon Granite Construction Incorporated is expected to generate 0.84 times more return on investment than Quanta Services. However, Granite Construction Incorporated is 1.2 times less risky than Quanta Services. It trades about 0.37 of its potential returns per unit of risk. Quanta Services is currently generating about 0.3 per unit of risk. If you would invest  7,258  in Granite Construction Incorporated on August 31, 2024 and sell it today you would earn a total of  2,611  from holding Granite Construction Incorporated or generate 35.97% return on investment over 90 days.

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

Granite Construction Incorpora  vs.  Quanta Services

Granite Construction

Risk-Adjusted Performance

29 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction Incorporated are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Granite Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Quanta Services

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Quanta Services are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively fragile basic indicators, Quanta Services reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Granite Construction and Quanta Services

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

The idea behind Granite Construction Incorporated and Quanta Services 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.