Correlation Between Eagle Materials and INDOFOOD AGRI

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

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

Diversification Opportunities for Eagle Materials and INDOFOOD AGRI

0.2

Correlation Coefficient

Eagle Materials  INDOFOOD AGRI

Modest diversification

The 3 months correlation between Eagle and INDOFOOD is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and INDOFOOD AGRI RES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDOFOOD AGRI RES 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 INDOFOOD AGRI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDOFOOD AGRI RES has no effect on the direction of Eagle Materials i.e., Eagle Materials and INDOFOOD AGRI go up and down completely randomly.

Pair Corralation between Eagle Materials and INDOFOOD AGRI

Assuming the 90 days horizon Eagle Materials is expected to generate 0.92 times more return on investment than INDOFOOD AGRI. However, Eagle Materials is 1.09 times less risky than INDOFOOD AGRI. It trades about 0.07 of its potential returns per unit of risk. INDOFOOD AGRI RES is currently generating about 0.02 per unit of risk. If you would invest  13,354  in Eagle Materials on October 26, 2024 and sell it today you would earn a total of  11,446  from holding Eagle Materials or generate 85.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Eagle Materials  vs.  INDOFOOD AGRI RES

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.

INDOFOOD AGRI RES

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in INDOFOOD AGRI RES are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, INDOFOOD AGRI is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Eagle Materials and INDOFOOD AGRI

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

The idea behind Eagle Materials and INDOFOOD AGRI RES 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.