Correlation Between Micro Focus and Eagle Materials

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

Diversification Opportunities for Micro Focus and Eagle Materials

0.93
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Micro and Eagle is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Micro Focus International and Eagle Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Materials and Micro Focus 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 Micro Focus International 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 Micro Focus i.e., Micro Focus and Eagle Materials go up and down completely randomly.

Pair Corralation between Micro Focus and Eagle Materials

Given the investment horizon of 90 days Micro Focus is expected to generate 1.51 times less return on investment than Eagle Materials. But when comparing it to its historical volatility, Micro Focus International is 1.88 times less risky than Eagle Materials. It trades about 0.2 of its potential returns per unit of risk. Eagle Materials is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  12,371  in Eagle Materials on September 7, 2022 and sell it today you would earn a total of  938.00  from holding Eagle Materials or generate 7.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Micro Focus International  vs.  Eagle Materials

 Performance (%) 
       Timeline  
Micro Focus International 
Micro Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Micro Focus International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak technical and fundamental indicators, Micro Focus may actually be approaching a critical reversion point that can send shares even higher in January 2023.

Micro Price Channel

Eagle Materials 
Eagle Performance
6 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Materials are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eagle Materials displayed solid returns over the last few months and may actually be approaching a breakup point.

Eagle Price Channel

Micro Focus and Eagle Materials Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Micro Focus and Eagle Materials

The main advantage of trading using opposite Micro Focus and Eagle Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Micro Focus 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.
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The idea behind Micro Focus International 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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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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