Correlation Between Eaton PLC and Goodyear Tire
Can any of the company-specific risk be diversified away by investing in both Eaton PLC and Goodyear Tire 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 Goodyear Tire into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton PLC and Goodyear Tire Rubber, you can compare the effects of market volatilities on Eaton PLC and Goodyear Tire 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 Goodyear Tire. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and Goodyear Tire.
Diversification Opportunities for Eaton PLC and Goodyear Tire
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Eaton and Goodyear is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Goodyear Tire Rubber in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Goodyear Tire Rubber 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 Goodyear Tire. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Goodyear Tire Rubber has no effect on the direction of Eaton PLC i.e., Eaton PLC and Goodyear Tire go up and down completely randomly.
Pair Corralation between Eaton PLC and Goodyear Tire
Assuming the 90 days horizon Eaton PLC is expected to generate 0.72 times more return on investment than Goodyear Tire. However, Eaton PLC is 1.39 times less risky than Goodyear Tire. It trades about 0.12 of its potential returns per unit of risk. Goodyear Tire Rubber is currently generating about -0.02 per unit of risk. If you would invest 21,164 in Eaton PLC on September 4, 2024 and sell it today you would earn a total of 14,831 from holding Eaton PLC or generate 70.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eaton PLC vs. Goodyear Tire Rubber
Performance |
| Timeline |
| Eaton PLC |
| Goodyear Tire Rubber |
Eaton PLC and Goodyear Tire Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton PLC and Goodyear Tire
The main advantage of trading using opposite Eaton PLC and Goodyear Tire positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC position performs unexpectedly, Goodyear Tire 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 Goodyear Tire will offset losses from the drop in Goodyear Tire's long position.| Eaton PLC vs. Schneider Electric SE | Eaton PLC vs. ABB | Eaton PLC vs. 3M Company | Eaton PLC vs. Emerson Electric Co |
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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 the Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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