Correlation Between Great Lakes and EMCOR
Can any of the company-specific risk be diversified away by investing in both Great Lakes and EMCOR 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 Great Lakes and EMCOR into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Great Lakes Dredge and EMCOR Group, you can compare the effects of market volatilities on Great Lakes and EMCOR 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 Great Lakes with a short position of EMCOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Great Lakes and EMCOR.
Diversification Opportunities for Great Lakes and EMCOR
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Great and EMCOR is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Great Lakes Dredge and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group and Great Lakes 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 Great Lakes Dredge are associated (or correlated) with EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of Great Lakes i.e., Great Lakes and EMCOR go up and down completely randomly.
Pair Corralation between Great Lakes and EMCOR
Given the investment horizon of 90 days Great Lakes Dredge is expected to under-perform the EMCOR. In addition to that, Great Lakes is 1.11 times more volatile than EMCOR Group. It trades about -0.2 of its total potential returns per unit of risk. EMCOR Group is currently generating about 0.18 per unit of volatility. If you would invest 33,084 in EMCOR Group on January 17, 2024 and sell it today you would earn a total of 1,643 from holding EMCOR Group or generate 4.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Great Lakes Dredge vs. EMCOR Group
Performance |
| Timeline |
| Great Lakes Dredge |
| EMCOR Group |
Great Lakes and EMCOR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Great Lakes and EMCOR
The main advantage of trading using opposite Great Lakes and EMCOR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great Lakes position performs unexpectedly, EMCOR 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 EMCOR will offset losses from the drop in EMCOR's long position.| Great Lakes vs. KBR Inc | Great Lakes vs. Tetra Tech | Great Lakes vs. Topbuild Corp | Great Lakes vs. Matrix Service Co |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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