Correlation Between Eagle Materials and Ebro Foods

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

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

Diversification Opportunities for Eagle Materials and Ebro Foods

0.22

Correlation Coefficient

Eagle Materials  Ebro Foods

Modest diversification

The 3 months correlation between Eagle and Ebro is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and Ebro Foods SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ebro Foods SA 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 Ebro Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ebro Foods SA has no effect on the direction of Eagle Materials i.e., Eagle Materials and Ebro Foods go up and down completely randomly.

Pair Corralation between Eagle Materials and Ebro Foods

Assuming the 90 days horizon Eagle Materials is expected to generate 2.51 times more return on investment than Ebro Foods. However, Eagle Materials is 2.51 times more volatile than Ebro Foods SA. It trades about 0.19 of its potential returns per unit of risk. Ebro Foods SA is currently generating about -0.01 per unit of risk. If you would invest  23,800  in Eagle Materials on October 22, 2024 and sell it today you would earn a total of  1,200  from holding Eagle Materials or generate 5.04% return on investment over 90 days.

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

Eagle Materials  vs.  Ebro Foods SA

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 nearly stable basic indicators, Eagle Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Ebro Foods SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ebro Foods SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Ebro Foods 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 Ebro Foods

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

The idea behind Eagle Materials and Ebro Foods SA 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.