Correlation Between Eagle Materials and Amazon

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

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

Diversification Opportunities for Eagle Materials and Amazon

0.67

Correlation Coefficient

Eagle Materials  Amazon

Poor diversification

The 3 months correlation between Eagle and Amazon is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Eagle Materials i.e., Eagle Materials and Amazon go up and down completely randomly.

Pair Corralation between Eagle Materials and Amazon

Assuming the 90 days horizon Eagle Materials is expected to generate 1.18 times more return on investment than Amazon. However, Eagle Materials is 1.18 times more volatile than Amazon Inc. It trades about 0.13 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.03 per unit of risk. If you would invest  23,600  in Eagle Materials on February 14, 2024 and sell it today you would earn a total of  1,200  from holding Eagle Materials or generate 5.08% 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.  Amazon Inc

Eagle Materials

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Materials are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eagle Materials may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Amazon Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Amazon may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Eagle Materials and Amazon

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

The idea behind Eagle Materials and Amazon Inc 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.