Correlation Between Eagle Materials and Central Japan

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

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

Diversification Opportunities for Eagle Materials and Central Japan

0.53

Correlation Coefficient

Eagle Materials  Central Japan

Very weak diversification

The 3 months correlation between Eagle and Central is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and Central Japan Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Japan Railway 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 Central Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Japan Railway has no effect on the direction of Eagle Materials i.e., Eagle Materials and Central Japan go up and down completely randomly.

Pair Corralation between Eagle Materials and Central Japan

Assuming the 90 days horizon Eagle Materials is expected to under-perform the Central Japan. In addition to that, Eagle Materials is 1.45 times more volatile than Central Japan Railway. It trades about -0.15 of its total potential returns per unit of risk. Central Japan Railway is currently generating about -0.19 per unit of volatility. If you would invest  1,980  in Central Japan Railway on October 12, 2024 and sell it today you would lose (264.00) from holding Central Japan Railway or give up 13.33% of portfolio value over 90 days.

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

Eagle Materials  vs.  Central Japan Railway

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Central Japan Railway

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Central Japan Railway has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Eagle Materials and Central Japan

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

The idea behind Eagle Materials and Central Japan Railway 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.