Correlation Between Eagle Materials and SIMS METAL

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

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

Diversification Opportunities for Eagle Materials and SIMS METAL

0.63

Correlation Coefficient

Eagle Materials  SIMS METAL

Poor diversification

The 3 months correlation between Eagle and SIMS is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and SIMS METAL MGT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMS METAL MGT 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 SIMS METAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMS METAL MGT has no effect on the direction of Eagle Materials i.e., Eagle Materials and SIMS METAL go up and down completely randomly.

Pair Corralation between Eagle Materials and SIMS METAL

Assuming the 90 days horizon Eagle Materials is expected to generate 0.97 times more return on investment than SIMS METAL. However, Eagle Materials is 1.04 times less risky than SIMS METAL. It trades about 0.1 of its potential returns per unit of risk. SIMS METAL MGT is currently generating about 0.0 per unit of risk. If you would invest  15,925  in Eagle Materials on September 15, 2024 and sell it today you would earn a total of  10,475  from holding Eagle Materials or generate 65.78% return on investment over 90 days.

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

Eagle Materials  vs.  SIMS METAL MGT

Eagle Materials

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eagle Materials may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SIMS METAL MGT

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS METAL MGT are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, SIMS METAL exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eagle Materials and SIMS METAL

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

The idea behind Eagle Materials and SIMS METAL MGT 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.