Correlation Between China Natural and Eaton PLC
Can any of the company-specific risk be diversified away by investing in both China Natural and Eaton PLC 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 China Natural and Eaton PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between China Natural Resources and Eaton PLC, you can compare the effects of market volatilities on China Natural and Eaton PLC 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 China Natural with a short position of Eaton PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Natural and Eaton PLC.
Diversification Opportunities for China Natural and Eaton PLC
0.29 | Correlation Coefficient |
Modest diversification
The 3 months correlation between China and Eaton is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding China Natural Resources and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and China Natural 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 China Natural Resources are associated (or correlated) with Eaton PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton PLC has no effect on the direction of China Natural i.e., China Natural and Eaton PLC go up and down completely randomly.
Pair Corralation between China Natural and Eaton PLC
Given the investment horizon of 90 days China Natural Resources is expected to under-perform the Eaton PLC. In addition to that, China Natural is 1.58 times more volatile than Eaton PLC. It trades about -0.13 of its total potential returns per unit of risk. Eaton PLC is currently generating about -0.2 per unit of volatility. If you would invest 31,155 in Eaton PLC on November 27, 2024 and sell it today you would lose (2,170) from holding Eaton PLC or give up 6.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
China Natural Resources vs. Eaton PLC
Performance |
| Timeline |
| China Natural Resources |
| Eaton PLC |
China Natural and Eaton PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with China Natural and Eaton PLC
The main advantage of trading using opposite China Natural and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Natural position performs unexpectedly, Eaton PLC 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 Eaton PLC will offset losses from the drop in Eaton PLC's long position.| China Natural vs. Seychelle Environmtl | China Natural vs. Vow ASA | China Natural vs. Eestech | China Natural vs. Energy and Water |
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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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