Correlation Between Eagle Materials and Sumitomo Mitsui

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

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

Diversification Opportunities for Eagle Materials and Sumitomo Mitsui

-0.29

Correlation Coefficient

Eagle Materials  Sumitomo Mitsui

Very good diversification

The 3 months correlation between Eagle and Sumitomo is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and Sumitomo Mitsui Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sumitomo Mitsui Cons 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 Sumitomo Mitsui. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sumitomo Mitsui Cons has no effect on the direction of Eagle Materials i.e., Eagle Materials and Sumitomo Mitsui go up and down completely randomly.

Pair Corralation between Eagle Materials and Sumitomo Mitsui

Assuming the 90 days horizon Eagle Materials is expected to generate 1.47 times more return on investment than Sumitomo Mitsui. However, Eagle Materials is 1.47 times more volatile than Sumitomo Mitsui Construction. It trades about 0.18 of its potential returns per unit of risk. Sumitomo Mitsui Construction is currently generating about 0.04 per unit of risk. If you would invest  22,977  in Eagle Materials on August 31, 2024 and sell it today you would earn a total of  5,823  from holding Eagle Materials or generate 25.34% return on investment over 90 days.

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

Eagle Materials  vs.  Sumitomo Mitsui Construction

Eagle Materials

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Materials are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eagle Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Sumitomo Mitsui Cons

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sumitomo Mitsui Construction are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sumitomo Mitsui is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eagle Materials and Sumitomo Mitsui

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

The idea behind Eagle Materials and Sumitomo Mitsui Construction 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.