Correlation Between James Hardie and Eagle Materials
Can any of the company-specific risk be diversified away by investing in both James Hardie 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 James Hardie and Eagle Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between James Hardie Industries and Eagle Materials, you can compare the effects of market volatilities on James Hardie 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 James Hardie with a short position of Eagle Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of James Hardie and Eagle Materials.
Diversification Opportunities for James Hardie and Eagle Materials
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between James and Eagle is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding James Hardie Industries and Eagle Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Materials and James Hardie 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 James Hardie Industries 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 James Hardie i.e., James Hardie and Eagle Materials go up and down completely randomly.
Pair Corralation between James Hardie and Eagle Materials
Considering the 90-day investment horizon James Hardie is expected to generate 1.39 times less return on investment than Eagle Materials. In addition to that, James Hardie is 1.34 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 0.1 per unit of volatility. If you would invest 14,594 in Eagle Materials on August 27, 2024 and sell it today you would earn a total of 16,935 from holding Eagle Materials or generate 116.04% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
James Hardie Industries vs. Eagle Materials
Performance |
| Timeline |
| James Hardie Industries |
| Eagle Materials |
James Hardie and Eagle Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with James Hardie and Eagle Materials
The main advantage of trading using opposite James Hardie and Eagle Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if James Hardie 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 James Hardie Industries 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.| Eagle Materials vs. Holcim | Eagle Materials vs. Lafargeholcim Ltd ADR | Eagle Materials vs. The Monarch Cement |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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