Correlation Between GMO Internet and Granite Construction

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

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

Diversification Opportunities for GMO Internet and Granite Construction

0.63

Correlation Coefficient

GMO Internet  Granite Construction

Poor diversification

The 3 months correlation between GMO and Granite is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding GMO Internet and Granite Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction and GMO Internet 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 GMO Internet are associated (or correlated) with Granite Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Granite Construction has no effect on the direction of GMO Internet i.e., GMO Internet and Granite Construction go up and down completely randomly.

Pair Corralation between GMO Internet and Granite Construction

Assuming the 90 days horizon GMO Internet is expected to generate 1.23 times more return on investment than Granite Construction. However, GMO Internet is 1.23 times more volatile than Granite Construction. It trades about -0.17 of its potential returns per unit of risk. Granite Construction is currently generating about -0.3 per unit of risk. If you would invest  1,710  in GMO Internet on October 9, 2024 and sell it today you would lose (80.00) from holding GMO Internet or give up 4.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.12%
Values	Daily Returns

GMO Internet  vs.  Granite Construction

GMO Internet

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in GMO Internet are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, GMO Internet may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Granite Construction

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Granite Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Granite Construction unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GMO Internet and Granite Construction

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

The idea behind GMO Internet and Granite Construction 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.