Correlation Between Fortune Brands and EAGLE MATERIALS

Can any of the company-specific risk be diversified away by investing in both Fortune Brands 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 Fortune Brands and EAGLE MATERIALS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fortune Brands Home and EAGLE MATERIALS, you can compare the effects of market volatilities on Fortune Brands 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 Fortune Brands with a short position of EAGLE MATERIALS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortune Brands and EAGLE MATERIALS.

Diversification Opportunities for Fortune Brands and EAGLE MATERIALS

0.93

Correlation Coefficient

Fortune Brands  EAGLE MATERIALS

Almost no diversification

The 3 months correlation between Fortune and EAGLE is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Fortune Brands Home and EAGLE MATERIALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EAGLE MATERIALS and Fortune Brands 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 Fortune Brands Home 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 Fortune Brands i.e., Fortune Brands and EAGLE MATERIALS go up and down completely randomly.

Pair Corralation between Fortune Brands and EAGLE MATERIALS

Assuming the 90 days trading horizon Fortune Brands Home is expected to generate 0.77 times more return on investment than EAGLE MATERIALS. However, Fortune Brands Home is 1.3 times less risky than EAGLE MATERIALS. It trades about -0.13 of its potential returns per unit of risk. EAGLE MATERIALS is currently generating about -0.13 per unit of risk. If you would invest  6,674  in Fortune Brands Home on December 22, 2024 and sell it today you would lose (874.00) from holding Fortune Brands Home or give up 13.1% of portfolio value over 90 days.

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

Fortune Brands Home  vs.  EAGLE MATERIALS

Fortune Brands Home

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortune Brands Home has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

EAGLE MATERIALS

Risk-Adjusted Performance

Very Weak

Over the last 90 days EAGLE MATERIALS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Fortune Brands and EAGLE MATERIALS

The main advantage of trading using opposite Fortune Brands and EAGLE MATERIALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fortune Brands 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's long position.

The idea behind Fortune Brands Home 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.