Correlation Between Playa Hotels and Granite Construction

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

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

Diversification Opportunities for Playa Hotels and Granite Construction

0.94

Correlation Coefficient

Playa Hotels  Granite Construction

Almost no diversification

The 3 months correlation between Playa and Granite is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Playa Hotels Resorts and Granite Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction and Playa Hotels 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 Playa Hotels Resorts 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 Playa Hotels i.e., Playa Hotels and Granite Construction go up and down completely randomly.

Pair Corralation between Playa Hotels and Granite Construction

Assuming the 90 days horizon Playa Hotels Resorts is expected to generate 1.42 times more return on investment than Granite Construction. However, Playa Hotels is 1.42 times more volatile than Granite Construction. It trades about -0.01 of its potential returns per unit of risk. Granite Construction is currently generating about -0.37 per unit of risk. If you would invest  910.00  in Playa Hotels Resorts on September 29, 2024 and sell it today you would lose (5.00) from holding Playa Hotels Resorts or give up 0.55% of portfolio value over 90 days.

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

Playa Hotels Resorts  vs.  Granite Construction

Playa Hotels Resorts

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Playa Hotels Resorts are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Playa Hotels reported solid returns over the last few months and may actually be approaching a breakup point.

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

Pair Trading with Playa Hotels and Granite Construction

The main advantage of trading using opposite Playa Hotels and Granite Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Playa Hotels 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 Playa Hotels Resorts 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.