Correlation Between Daikin IndustriesLtd and Eagle Materials

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Can any of the company-specific risk be diversified away by investing in both Daikin IndustriesLtd 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 Daikin IndustriesLtd and Eagle Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Daikin IndustriesLtd and Eagle Materials, you can compare the effects of market volatilities on Daikin IndustriesLtd 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 Daikin IndustriesLtd with a short position of Eagle Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daikin IndustriesLtd and Eagle Materials.

Diversification Opportunities for Daikin IndustriesLtd and Eagle Materials

0.73
  Correlation Coefficient

Poor diversification

The 3 months correlation between Daikin and Eagle is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Daikin IndustriesLtd and Eagle Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Materials and Daikin IndustriesLtd 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 Daikin IndustriesLtd 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 Daikin IndustriesLtd i.e., Daikin IndustriesLtd and Eagle Materials go up and down completely randomly.

Pair Corralation between Daikin IndustriesLtd and Eagle Materials

Assuming the 90 days horizon Daikin IndustriesLtd is expected to generate 4.7 times less return on investment than Eagle Materials. In addition to that, Daikin IndustriesLtd is 1.14 times more volatile than Eagle Materials. It trades about 0.05 of its total potential returns per unit of risk. Eagle Materials is currently generating about 0.25 per unit of volatility. If you would invest  26,000  in Eagle Materials on September 1, 2024 and sell it today you would earn a total of  2,800  from holding Eagle Materials or generate 10.77% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.65%
ValuesDaily Returns

Daikin IndustriesLtd  vs.  Eagle Materials

 Performance 
       Timeline  
Daikin IndustriesLtd 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Daikin IndustriesLtd are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Daikin IndustriesLtd reported solid returns over the last few months and may actually be approaching a breakup point.
Eagle Materials 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
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 uncertain basic indicators, Eagle Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Daikin IndustriesLtd and Eagle Materials Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Daikin IndustriesLtd and Eagle Materials

The main advantage of trading using opposite Daikin IndustriesLtd and Eagle Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daikin IndustriesLtd 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.
The idea behind Daikin IndustriesLtd and Eagle Materials 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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