Correlation Between Microsoft and Granite Construction
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Granite Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Granite Construction, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Granite Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Granite Construction.
Diversification Opportunities for Microsoft and Granite Construction
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Microsoft and Granite is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Granite Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Granite Construction go up and down completely randomly.
Pair Corralation between Microsoft and Granite Construction
Assuming the 90 days trading horizon Microsoft is expected to generate 23.83 times less return on investment than Granite Construction. But when comparing it to its historical volatility, Microsoft is 1.61 times less risky than Granite Construction. It trades about 0.03 of its potential returns per unit of risk. Granite Construction is currently generating about 0.38 of returns per unit of risk over similar time horizon. If you would invest 7,600 in Granite Construction on August 28, 2024 and sell it today you would earn a total of 1,850 from holding Granite Construction or generate 24.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Microsoft vs. Granite Construction
Performance |
| Timeline |
| Microsoft |
| Granite Construction |
Microsoft and Granite Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Granite Construction
The main advantage of trading using opposite Microsoft and Granite Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Pentair plc | Microsoft vs. NORWEGIAN AIR SHUT | Microsoft vs. GEAR4MUSIC LS 10 | Microsoft vs. Fair Isaac Corp |
| Granite Construction vs. Flutter Entertainment PLC | Granite Construction vs. Townsquare Media | Granite Construction vs. Hollywood Bowl Group | Granite Construction vs. Caseys General Stores |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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