Correlation Between Nufarm and Granite Construction
Can any of the company-specific risk be diversified away by investing in both Nufarm 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 Nufarm and Granite Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Nufarm Limited and Granite Construction, you can compare the effects of market volatilities on Nufarm 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 Nufarm with a short position of Granite Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nufarm and Granite Construction.
Diversification Opportunities for Nufarm and Granite Construction
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Nufarm and Granite is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Nufarm Limited and Granite Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Granite Construction and Nufarm 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 Nufarm Limited 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 Nufarm i.e., Nufarm and Granite Construction go up and down completely randomly.
Pair Corralation between Nufarm and Granite Construction
Assuming the 90 days horizon Nufarm is expected to generate 8.51 times less return on investment than Granite Construction. But when comparing it to its historical volatility, Nufarm Limited is 1.28 times less risky than Granite Construction. It trades about 0.05 of its potential returns per unit of risk. Granite Construction is currently generating about 0.31 of returns per unit of risk over similar time horizon. If you would invest 7,700 in Granite Construction on September 1, 2024 and sell it today you would earn a total of 1,550 from holding Granite Construction or generate 20.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Nufarm Limited vs. Granite Construction
Performance |
| Timeline |
| Nufarm Limited |
| Granite Construction |
Nufarm and Granite Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Nufarm and Granite Construction
The main advantage of trading using opposite Nufarm and Granite Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nufarm 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 Nufarm Limited 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.| Granite Construction vs. Apple Inc | Granite Construction vs. Apple Inc | Granite Construction vs. Apple Inc | Granite Construction vs. Apple Inc |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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