Correlation Between United States and Eagle Materials

Can any of the company-specific risk be diversified away by investing in both United States and Eagle Materials 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 United States and Eagle Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United States Lime and Eagle Materials, you can compare the effects of market volatilities on United States and Eagle Materials 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 United States with a short position of Eagle Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of United States and Eagle Materials.

Diversification Opportunities for United States and Eagle Materials

0.86

Correlation Coefficient

United States  Eagle Materials

Very poor diversification

The 3 months correlation between United and Eagle is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding United States Lime and Eagle Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Materials and United States 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 United States Lime are associated (or correlated) with Eagle Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Materials has no effect on the direction of United States i.e., United States and Eagle Materials go up and down completely randomly.

Pair Corralation between United States and Eagle Materials

Given the investment horizon of 90 days United States Lime is expected to generate 1.6 times more return on investment than Eagle Materials. However, United States is 1.6 times more volatile than Eagle Materials. It trades about 0.33 of its potential returns per unit of risk. Eagle Materials is currently generating about 0.17 per unit of risk. If you would invest  7,780  in United States Lime on August 18, 2024 and sell it today you would earn a total of  6,341  from holding United States Lime or generate 81.5% return on investment over 90 days.

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

United States Lime  vs.  Eagle Materials

United States Lime

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United States Lime are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady essential indicators, United States displayed solid returns over the last few months and may actually be approaching a breakup point.

Eagle Materials

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Materials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Eagle Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United States and Eagle Materials

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

The idea behind United States Lime and Eagle Materials 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.

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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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.