Correlation Between SIMS METAL and Eagle Materials

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

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

Diversification Opportunities for SIMS METAL and Eagle Materials

-0.27

Correlation Coefficient

SIMS METAL  Eagle Materials

Very good diversification

The 3 months correlation between SIMS and Eagle is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding SIMS METAL MGT and Eagle Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Materials and SIMS METAL 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 SIMS METAL MGT are associated (or correlated) with Eagle Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Materials has no effect on the direction of SIMS METAL i.e., SIMS METAL and Eagle Materials go up and down completely randomly.

Pair Corralation between SIMS METAL and Eagle Materials

Assuming the 90 days trading horizon SIMS METAL MGT is expected to generate 1.25 times more return on investment than Eagle Materials. However, SIMS METAL is 1.25 times more volatile than Eagle Materials. It trades about 0.05 of its potential returns per unit of risk. Eagle Materials is currently generating about -0.3 per unit of risk. If you would invest  795.00  in SIMS METAL MGT on December 4, 2024 and sell it today you would earn a total of  35.00  from holding SIMS METAL MGT or generate 4.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

SIMS METAL MGT  vs.  Eagle Materials

SIMS METAL MGT

Risk-Adjusted Performance

Insignificant

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

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

Pair Trading with SIMS METAL and Eagle Materials

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

The idea behind SIMS METAL MGT and Eagle Materials 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.