Correlation Between Eaton PLC and Ebara Corp

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

By analyzing existing cross correlation between Eaton PLC and Ebara Corp ADR, you can compare the effects of market volatilities on Eaton PLC and Ebara Corp 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 Eaton PLC with a short position of Ebara Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and Ebara Corp.

Diversification Opportunities for Eaton PLC and Ebara Corp

-0.41

Correlation Coefficient

Eaton PLC  Ebara Corp

Very good diversification

The 3 months correlation between Eaton and Ebara is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Ebara Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ebara Corp ADR and Eaton PLC 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 Eaton PLC are associated (or correlated) with Ebara Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ebara Corp ADR has no effect on the direction of Eaton PLC i.e., Eaton PLC and Ebara Corp go up and down completely randomly.

Pair Corralation between Eaton PLC and Ebara Corp

Considering the 90-day investment horizon Eaton PLC is expected to generate 0.66 times more return on investment than Ebara Corp. However, Eaton PLC is 1.52 times less risky than Ebara Corp. It trades about 0.08 of its potential returns per unit of risk. Ebara Corp ADR is currently generating about -0.07 per unit of risk. If you would invest  30,717  in Eaton PLC on March 22, 2024 and sell it today you would earn a total of  1,607  from holding Eaton PLC or generate 5.23% return on investment over 90 days.

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

Eaton PLC  vs.  Ebara Corp ADR

Eaton PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Eaton PLC is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Ebara Corp ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ebara Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Eaton PLC and Ebara Corp

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

The idea behind Eaton PLC and Ebara Corp 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.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..