Correlation Between United States and Eagle Materials

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

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

Diversification Opportunities for United States and Eagle Materials

0.76

Correlation Coefficient

United States  Eagle Materials

Poor diversification

The 3 months correlation between United and Eagle is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding United States Lime and Eagle Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Materials and United States 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 United States Lime 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 United States i.e., United States and Eagle Materials go up and down completely randomly.

Pair Corralation between United States and Eagle Materials

Given the investment horizon of 90 days United States Lime is expected to under-perform the Eagle Materials. In addition to that, United States is 1.45 times more volatile than Eagle Materials. It trades about -0.25 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  24,619  in Eagle Materials on December 28, 2024 and sell it today you would lose (2,037) from holding Eagle Materials or give up 8.27% of portfolio value over 90 days.

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

United States Lime  vs.  Eagle Materials

United States Lime

Risk-Adjusted Performance

Very Weak

Over the last 90 days United States Lime has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's essential indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 latest unsteady performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with United States and Eagle Materials

The main advantage of trading using opposite United States and Eagle Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Lime 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.