Correlation Between EatonPLC and Spirent Communications
Can any of the company-specific risk be diversified away by investing in both EatonPLC and Spirent Communications 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 Spirent Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton PLC and Spirent Communications plc, you can compare the effects of market volatilities on EatonPLC and Spirent Communications 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 Spirent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of EatonPLC and Spirent Communications.
Diversification Opportunities for EatonPLC and Spirent Communications
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between EatonPLC and Spirent is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications 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 Spirent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirent Communications has no effect on the direction of EatonPLC i.e., EatonPLC and Spirent Communications go up and down completely randomly.
Pair Corralation between EatonPLC and Spirent Communications
Assuming the 90 days horizon EatonPLC is expected to generate 1.25 times less return on investment than Spirent Communications. But when comparing it to its historical volatility, Eaton PLC is 2.43 times less risky than Spirent Communications. It trades about 0.12 of its potential returns per unit of risk. Spirent Communications plc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 114.00 in Spirent Communications plc on September 1, 2024 and sell it today you would earn a total of 90.00 from holding Spirent Communications plc or generate 78.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 99.64% |
| Values | Daily Returns |
Eaton PLC vs. Spirent Communications plc
Performance |
| Timeline |
| Eaton PLC |
| Spirent Communications |
EatonPLC and Spirent Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EatonPLC and Spirent Communications
The main advantage of trading using opposite EatonPLC and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EatonPLC position performs unexpectedly, Spirent Communications 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 Spirent Communications will offset losses from the drop in Spirent Communications' long position.| EatonPLC vs. INDOFOOD AGRI RES | EatonPLC vs. Tyson Foods | EatonPLC vs. NISSIN FOODS HLDGS | EatonPLC vs. Astral Foods Limited |
| Spirent Communications vs. ATT Inc | Spirent Communications vs. Deutsche Telekom AG | Spirent Communications vs. Superior Plus Corp | Spirent Communications vs. NMI Holdings |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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