Correlation Between Eagle Materials and WisdomTree Investments

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

By analyzing existing cross correlation between Eagle Materials and WisdomTree Investments, you can compare the effects of market volatilities on Eagle Materials and WisdomTree Investments 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 WisdomTree Investments. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eagle Materials and WisdomTree Investments.

Diversification Opportunities for Eagle Materials and WisdomTree Investments

0.88

Correlation Coefficient

Eagle Materials  WisdomTree Investments

Very poor diversification

The 3 months correlation between Eagle and WisdomTree is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and WisdomTree Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Investments 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 WisdomTree Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Investments has no effect on the direction of Eagle Materials i.e., Eagle Materials and WisdomTree Investments go up and down completely randomly.

Pair Corralation between Eagle Materials and WisdomTree Investments

Assuming the 90 days horizon Eagle Materials is expected to generate 0.92 times more return on investment than WisdomTree Investments. However, Eagle Materials is 1.09 times less risky than WisdomTree Investments. It trades about -0.13 of its potential returns per unit of risk. WisdomTree Investments is currently generating about -0.14 per unit of risk. If you would invest  23,572  in Eagle Materials on December 30, 2024 and sell it today you would lose (3,372) from holding Eagle Materials or give up 14.31% of portfolio value over 90 days.

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

Eagle Materials  vs.  WisdomTree Investments

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. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

WisdomTree Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Eagle Materials and WisdomTree Investments

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

The idea behind Eagle Materials and WisdomTree Investments 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.