Correlation Between Eagle Materials and Trane Technologies

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

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

Diversification Opportunities for Eagle Materials and Trane Technologies

0.69

Correlation Coefficient

Eagle Materials  Trane Technologies

Poor diversification

The 3 months correlation between Eagle and Trane is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and Trane Technologies plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trane Technologies plc 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 Trane Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trane Technologies plc has no effect on the direction of Eagle Materials i.e., Eagle Materials and Trane Technologies go up and down completely randomly.

Pair Corralation between Eagle Materials and Trane Technologies

Assuming the 90 days horizon Eagle Materials is expected to under-perform the Trane Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Eagle Materials is 1.05 times less risky than Trane Technologies. The stock trades about -0.66 of its potential returns per unit of risk. The Trane Technologies plc is currently generating about -0.17 of returns per unit of risk over similar time horizon. If you would invest  38,170  in Trane Technologies plc on October 12, 2024 and sell it today you would lose (1,490) from holding Trane Technologies plc or give up 3.9% of portfolio value over 90 days.

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

Eagle Materials  vs.  Trane Technologies plc

Eagle Materials

Risk-Adjusted Performance

0 of 100

Very Weak

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

Trane Technologies plc

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Eagle Materials and Trane Technologies

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

The idea behind Eagle Materials and Trane Technologies plc 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.