Correlation Between EAGLE MATERIALS and HP

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Can any of the company-specific risk be diversified away by investing in both EAGLE MATERIALS and HP 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 EAGLE MATERIALS and HP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EAGLE MATERIALS and HP Inc, you can compare the effects of market volatilities on EAGLE MATERIALS and HP 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 EAGLE MATERIALS with a short position of HP. Check out your portfolio center. Please also check ongoing floating volatility patterns of EAGLE MATERIALS and HP.

Diversification Opportunities for EAGLE MATERIALS and HP

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between EAGLE and HP is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding EAGLE MATERIALS and HP Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HP Inc and EAGLE MATERIALS 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 EAGLE MATERIALS are associated (or correlated) with HP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HP Inc has no effect on the direction of EAGLE MATERIALS i.e., EAGLE MATERIALS and HP go up and down completely randomly.

Pair Corralation between EAGLE MATERIALS and HP

Assuming the 90 days trading horizon EAGLE MATERIALS is expected to generate 1.07 times more return on investment than HP. However, EAGLE MATERIALS is 1.07 times more volatile than HP Inc. It trades about 0.07 of its potential returns per unit of risk. HP Inc is currently generating about 0.01 per unit of risk. If you would invest  19,961  in EAGLE MATERIALS on September 27, 2024 and sell it today you would earn a total of  4,039  from holding EAGLE MATERIALS or generate 20.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

EAGLE MATERIALS  vs.  HP Inc

 Performance 
       Timeline  
EAGLE MATERIALS 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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 rather sound primary indicators, EAGLE MATERIALS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
HP Inc 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days HP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, HP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

EAGLE MATERIALS and HP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with EAGLE MATERIALS and HP

The main advantage of trading using opposite EAGLE MATERIALS and HP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EAGLE MATERIALS position performs unexpectedly, HP 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 HP will offset losses from the drop in HP's long position.
The idea behind EAGLE MATERIALS and HP Inc 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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