Correlation Between Eagle Materials and Datadog

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

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

Diversification Opportunities for Eagle Materials and Datadog

0.35

Correlation Coefficient

Eagle Materials  Datadog

Weak diversification

The 3 months correlation between Eagle and Datadog is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and Datadog in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Datadog 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 Datadog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Datadog has no effect on the direction of Eagle Materials i.e., Eagle Materials and Datadog go up and down completely randomly.

Pair Corralation between Eagle Materials and Datadog

Assuming the 90 days horizon Eagle Materials is expected to under-perform the Datadog. But the stock apears to be less risky and, when comparing its historical volatility, Eagle Materials is 1.42 times less risky than Datadog. The stock trades about -0.05 of its potential returns per unit of risk. The Datadog is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  10,264  in Datadog on September 23, 2024 and sell it today you would earn a total of  3,508  from holding Datadog or generate 34.18% return on investment over 90 days.

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

Eagle Materials  vs.  Datadog

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 nearly stable basic indicators, Eagle Materials is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Datadog

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Datadog are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Datadog reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eagle Materials and Datadog

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

The idea behind Eagle Materials and Datadog 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.

Check out your portfolio center.

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 Anywhere module to track or share privately all of your investments from the convenience of any device.