Correlation Between Eagle Materials and Holcim

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

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

Diversification Opportunities for Eagle Materials and Holcim

0.63

Correlation Coefficient

Eagle Materials  Holcim

Poor diversification

The 3 months correlation between Eagle and Holcim is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and Holcim in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holcim 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 Holcim. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holcim has no effect on the direction of Eagle Materials i.e., Eagle Materials and Holcim go up and down completely randomly.

Pair Corralation between Eagle Materials and Holcim

Considering the 90-day investment horizon Eagle Materials is expected to generate 1.2 times more return on investment than Holcim. However, Eagle Materials is 1.2 times more volatile than Holcim. It trades about 0.23 of its potential returns per unit of risk. Holcim is currently generating about 0.06 per unit of risk. If you would invest  24,449  in Eagle Materials on August 31, 2024 and sell it today you would earn a total of  6,144  from holding Eagle Materials or generate 25.13% return on investment over 90 days.

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

Eagle Materials  vs.  Holcim

Eagle Materials

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Materials are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Eagle Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Holcim

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Holcim are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable essential indicators, Holcim 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 Holcim

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

The idea behind Eagle Materials and Holcim 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.