Correlation Between Eagle Materials and Knife River

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

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

Diversification Opportunities for Eagle Materials and Knife River

0.32

Correlation Coefficient

Eagle Materials  Knife River

Weak diversification

The 3 months correlation between Eagle and Knife is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and Knife River in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knife River 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 Knife River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knife River has no effect on the direction of Eagle Materials i.e., Eagle Materials and Knife River go up and down completely randomly.

Pair Corralation between Eagle Materials and Knife River

Considering the 90-day investment horizon Eagle Materials is expected to under-perform the Knife River. But the stock apears to be less risky and, when comparing its historical volatility, Eagle Materials is 1.55 times less risky than Knife River. The stock trades about -0.31 of its potential returns per unit of risk. The Knife River is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  10,350  in Knife River on November 28, 2024 and sell it today you would lose (1,028) from holding Knife River or give up 9.93% 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.  Knife River

Eagle Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eagle Materials has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Knife River

Risk-Adjusted Performance

Very Weak

Over the last 90 days Knife River has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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.

Pair Trading with Eagle Materials and Knife River

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

The idea behind Eagle Materials and Knife River 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.