Correlation Between Eagle Materials and Digital Realty

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

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

Diversification Opportunities for Eagle Materials and Digital Realty

0.3

Correlation Coefficient

Eagle Materials  Digital Realty

Weak diversification

The 3 months correlation between Eagle and Digital is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and Digital Realty Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Realty Trust 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 Digital Realty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Realty Trust has no effect on the direction of Eagle Materials i.e., Eagle Materials and Digital Realty go up and down completely randomly.

Pair Corralation between Eagle Materials and Digital Realty

Assuming the 90 days horizon Eagle Materials is expected to under-perform the Digital Realty. In addition to that, Eagle Materials is 1.34 times more volatile than Digital Realty Trust. It trades about -0.79 of its total potential returns per unit of risk. Digital Realty Trust is currently generating about -0.35 per unit of volatility. If you would invest  18,020  in Digital Realty Trust on October 5, 2024 and sell it today you would lose (1,118) from holding Digital Realty Trust or give up 6.2% of portfolio value over 90 days.

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

Eagle Materials  vs.  Digital Realty Trust

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 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.

Digital Realty Trust

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Digital Realty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Digital Realty reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eagle Materials and Digital Realty

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

The idea behind Eagle Materials and Digital Realty Trust 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.