Correlation Between Eagle Materials and CITY OFFICE

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

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

Diversification Opportunities for Eagle Materials and CITY OFFICE

0.68

Correlation Coefficient

Eagle Materials  CITY OFFICE

Poor diversification

The 3 months correlation between Eagle and CITY is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and CITY OFFICE REIT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITY OFFICE REIT 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 CITY OFFICE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITY OFFICE REIT has no effect on the direction of Eagle Materials i.e., Eagle Materials and CITY OFFICE go up and down completely randomly.

Pair Corralation between Eagle Materials and CITY OFFICE

Assuming the 90 days horizon Eagle Materials is expected to under-perform the CITY OFFICE. But the stock apears to be less risky and, when comparing its historical volatility, Eagle Materials is 1.39 times less risky than CITY OFFICE. The stock trades about -0.1 of its potential returns per unit of risk. The CITY OFFICE REIT is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  500.00  in CITY OFFICE REIT on December 28, 2024 and sell it today you would lose (28.00) from holding CITY OFFICE REIT or give up 5.6% 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.  CITY OFFICE REIT

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

CITY OFFICE REIT

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Eagle Materials and CITY OFFICE

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

The idea behind Eagle Materials and CITY OFFICE REIT 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.

Check out your portfolio center.

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.