Correlation Between Eagle Materials and CapitaLand Investment

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

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

Diversification Opportunities for Eagle Materials and CapitaLand Investment

0.02

Correlation Coefficient

Eagle Materials  CapitaLand Investment

Significant diversification

The 3 months correlation between Eagle and CapitaLand is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and CapitaLand Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CapitaLand Investment 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 CapitaLand Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CapitaLand Investment has no effect on the direction of Eagle Materials i.e., Eagle Materials and CapitaLand Investment go up and down completely randomly.

Pair Corralation between Eagle Materials and CapitaLand Investment

Assuming the 90 days horizon Eagle Materials is expected to generate 1.28 times more return on investment than CapitaLand Investment. However, Eagle Materials is 1.28 times more volatile than CapitaLand Investment Limited. It trades about 0.18 of its potential returns per unit of risk. CapitaLand Investment Limited is currently generating about 0.05 per unit of risk. If you would invest  22,977  in Eagle Materials on September 2, 2024 and sell it today you would earn a total of  6,023  from holding Eagle Materials or generate 26.21% return on investment over 90 days.

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

Eagle Materials  vs.  CapitaLand Investment Limited

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. Despite nearly fragile basic indicators, Eagle Materials reported solid returns over the last few months and may actually be approaching a breakup point.

CapitaLand Investment

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CapitaLand Investment Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, CapitaLand Investment is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eagle Materials and CapitaLand Investment

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

The idea behind Eagle Materials and CapitaLand Investment Limited 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.