Correlation Between Eagle Materials and FuelCell Energy

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

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

Diversification Opportunities for Eagle Materials and FuelCell Energy

-0.62

Correlation Coefficient

Eagle Materials  FuelCell Energy

Excellent diversification

The 3 months correlation between Eagle and FuelCell is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy 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 FuelCell Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FuelCell Energy has no effect on the direction of Eagle Materials i.e., Eagle Materials and FuelCell Energy go up and down completely randomly.

Pair Corralation between Eagle Materials and FuelCell Energy

Assuming the 90 days horizon Eagle Materials is expected to under-perform the FuelCell Energy. But the stock apears to be less risky and, when comparing its historical volatility, Eagle Materials is 5.22 times less risky than FuelCell Energy. The stock trades about -0.02 of its potential returns per unit of risk. The FuelCell Energy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,175  in FuelCell Energy on September 21, 2024 and sell it today you would lose (161.00) from holding FuelCell Energy or give up 13.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Eagle Materials  vs.  FuelCell Energy

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.

FuelCell Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FuelCell Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FuelCell Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Eagle Materials and FuelCell Energy

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

The idea behind Eagle Materials and FuelCell Energy 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.