Correlation Between Eagle Materials and CRH PLC

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

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

Diversification Opportunities for Eagle Materials and CRH PLC

0.91

Correlation Coefficient

Eagle Materials  CRH PLC

Almost no diversification

The 3 months correlation between Eagle and CRH is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Materials and CRH PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CRH PLC ADR 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 CRH PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CRH PLC ADR has no effect on the direction of Eagle Materials i.e., Eagle Materials and CRH PLC go up and down completely randomly.

Pair Corralation between Eagle Materials and CRH PLC

Considering the 90-day investment horizon Eagle Materials is expected to generate 1.15 times less return on investment than CRH PLC. In addition to that, Eagle Materials is 1.06 times more volatile than CRH PLC ADR. It trades about 0.1 of its total potential returns per unit of risk. CRH PLC ADR is currently generating about 0.12 per unit of volatility. If you would invest  5,358  in CRH PLC ADR on January 25, 2024 and sell it today you would earn a total of  2,405  from holding CRH PLC ADR or generate 44.89% return on investment over 90 days.

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

Eagle Materials  vs.  CRH PLC ADR

Eagle Materials

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Materials are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Eagle Materials reported solid returns over the last few months and may actually be approaching a breakup point.

CRH PLC ADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CRH PLC ADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, CRH PLC may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Eagle Materials and CRH PLC

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

The idea behind Eagle Materials and CRH PLC ADR 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.