Correlation Between American Public and EAGLE MATERIALS

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

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

Diversification Opportunities for American Public and EAGLE MATERIALS

0.62

Correlation Coefficient

American Public  EAGLE MATERIALS

Poor diversification

The 3 months correlation between American and EAGLE is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and EAGLE MATERIALS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EAGLE MATERIALS and American Public 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 American Public Education 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 American Public i.e., American Public and EAGLE MATERIALS go up and down completely randomly.

Pair Corralation between American Public and EAGLE MATERIALS

Assuming the 90 days horizon American Public Education is expected to generate 1.59 times more return on investment than EAGLE MATERIALS. However, American Public is 1.59 times more volatile than EAGLE MATERIALS. It trades about 0.13 of its potential returns per unit of risk. EAGLE MATERIALS is currently generating about 0.18 per unit of risk. If you would invest  1,490  in American Public Education on September 2, 2024 and sell it today you would earn a total of  430.00  from holding American Public Education or generate 28.86% return on investment over 90 days.

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

American Public Education  vs.  EAGLE MATERIALS

American Public Education

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Public reported solid returns over the last few months and may actually be approaching a breakup point.

EAGLE MATERIALS

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EAGLE MATERIALS are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, EAGLE MATERIALS exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Public and EAGLE MATERIALS

The main advantage of trading using opposite American Public and EAGLE MATERIALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Public 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 American Public Education 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.