Correlation Between Knife River and Eagle Materials

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

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

Diversification Opportunities for Knife River and Eagle Materials

-0.24

Correlation Coefficient

Knife River  Eagle Materials

Very good diversification

The 3 months correlation between Knife and Eagle is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Knife River and Eagle Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Materials and Knife River 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 Knife River 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 Knife River i.e., Knife River and Eagle Materials go up and down completely randomly.

Pair Corralation between Knife River and Eagle Materials

Considering the 90-day investment horizon Knife River is expected to generate 1.26 times more return on investment than Eagle Materials. However, Knife River is 1.26 times more volatile than Eagle Materials. It trades about 0.12 of its potential returns per unit of risk. Eagle Materials is currently generating about 0.07 per unit of risk. If you would invest  3,551  in Knife River on October 10, 2024 and sell it today you would earn a total of  6,149  from holding Knife River or generate 173.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	81.85%
Values	Daily Returns

Knife River  vs.  Eagle Materials

Knife River

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Knife River are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Knife River reported solid returns over the last few months and may actually be approaching a breakup point.

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. 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 February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Knife River and Eagle Materials

The main advantage of trading using opposite Knife River and Eagle Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Knife River 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 Knife River 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.