Correlation Between STMicroelectronics and Eagle Materials

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

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

Diversification Opportunities for STMicroelectronics and Eagle Materials

-0.31

Correlation Coefficient

STMicroelectronics  Eagle Materials

Very good diversification

The 3 months correlation between STMicroelectronics and Eagle is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding STMicroelectronics NV and Eagle Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Materials and STMicroelectronics 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 STMicroelectronics NV 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 STMicroelectronics i.e., STMicroelectronics and Eagle Materials go up and down completely randomly.

Pair Corralation between STMicroelectronics and Eagle Materials

Assuming the 90 days horizon STMicroelectronics NV is expected to under-perform the Eagle Materials. In addition to that, STMicroelectronics is 1.17 times more volatile than Eagle Materials. It trades about -0.02 of its total potential returns per unit of risk. Eagle Materials is currently generating about 0.07 per unit of volatility. If you would invest  12,958  in Eagle Materials on October 3, 2024 and sell it today you would earn a total of  10,642  from holding Eagle Materials or generate 82.13% return on investment over 90 days.

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

STMicroelectronics NV  vs.  Eagle Materials

STMicroelectronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days STMicroelectronics NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, STMicroelectronics is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 latest fragile 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 STMicroelectronics and Eagle Materials

The main advantage of trading using opposite STMicroelectronics and Eagle Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if STMicroelectronics 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 STMicroelectronics NV 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.