Correlation Between EatonPLC and ABB
Can any of the company-specific risk be diversified away by investing in both EatonPLC and ABB 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 EatonPLC and ABB into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton PLC and ABB, you can compare the effects of market volatilities on EatonPLC and ABB 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 EatonPLC with a short position of ABB. Check out your portfolio center. Please also check ongoing floating volatility patterns of EatonPLC and ABB.
Diversification Opportunities for EatonPLC and ABB
Very weak diversification
The 3 months correlation between EatonPLC and ABB is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB and EatonPLC 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 ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of EatonPLC i.e., EatonPLC and ABB go up and down completely randomly.
Pair Corralation between EatonPLC and ABB
Assuming the 90 days horizon Eaton PLC is expected to under-perform the ABB. But the stock apears to be less risky and, when comparing its historical volatility, Eaton PLC is 1.09 times less risky than ABB. The stock trades about -0.04 of its potential returns per unit of risk. The ABB is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 5,250 in ABB on October 19, 2024 and sell it today you would earn a total of 0.00 from holding ABB or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 97.5% |
| Values | Daily Returns |
Eaton PLC vs. ABB
Performance |
| Timeline |
| Eaton PLC |
| ABB |
EatonPLC and ABB Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EatonPLC and ABB
The main advantage of trading using opposite EatonPLC and ABB positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EatonPLC position performs unexpectedly, ABB 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 ABB will offset losses from the drop in ABB's long position.| EatonPLC vs. ABB | EatonPLC vs. 3M Company | EatonPLC vs. Emerson Electric Co | EatonPLC vs. Trane Technologies plc |
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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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