Correlation Between China Merchants and Eagle Materials
Can any of the company-specific risk be diversified away by investing in both China Merchants 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 China Merchants and Eagle Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Merchants Port and Eagle Materials, you can compare the effects of market volatilities on China Merchants 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 China Merchants with a short position of Eagle Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Merchants and Eagle Materials.
Diversification Opportunities for China Merchants and Eagle Materials
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between China and Eagle is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding China Merchants Port and Eagle Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Materials and China Merchants 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 China Merchants Port 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 China Merchants i.e., China Merchants and Eagle Materials go up and down completely randomly.
Pair Corralation between China Merchants and Eagle Materials
Assuming the 90 days horizon China Merchants Port is expected to generate 0.97 times more return on investment than Eagle Materials. However, China Merchants Port is 1.03 times less risky than Eagle Materials. It trades about 0.15 of its potential returns per unit of risk. Eagle Materials is currently generating about -0.31 per unit of risk. If you would invest 148.00 in China Merchants Port on September 12, 2024 and sell it today you would earn a total of 7.00 from holding China Merchants Port or generate 4.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Merchants Port vs. Eagle Materials
Performance |
| Timeline |
| China Merchants Port |
| Eagle Materials |
China Merchants and Eagle Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Merchants and Eagle Materials
The main advantage of trading using opposite China Merchants and Eagle Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Merchants 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.| China Merchants vs. Guidewire Software | China Merchants vs. United States Steel | China Merchants vs. MAGIC SOFTWARE ENTR | China Merchants vs. UPDATE SOFTWARE |
| Eagle Materials vs. Vulcan Materials | Eagle Materials vs. Heidelberg Materials AG | Eagle Materials vs. Superior Plus Corp | Eagle Materials vs. NMI Holdings |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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