Correlation Between Eaton Plc and Home Depot
Can any of the company-specific risk be diversified away by investing in both Eaton Plc and Home Depot 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 Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton plc and The Home Depot, you can compare the effects of market volatilities on Eaton Plc and Home Depot 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 Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton Plc and Home Depot.
Diversification Opportunities for Eaton Plc and Home Depot
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Eaton and Home is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Eaton plc and The Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Eaton Plc i.e., Eaton Plc and Home Depot go up and down completely randomly.
Pair Corralation between Eaton Plc and Home Depot
Assuming the 90 days trading horizon Eaton Plc is expected to generate 1.4 times less return on investment than Home Depot. In addition to that, Eaton Plc is 1.06 times more volatile than The Home Depot. It trades about 0.1 of its total potential returns per unit of risk. The Home Depot is currently generating about 0.15 per unit of volatility. If you would invest 6,635 in The Home Depot on September 12, 2024 and sell it today you would earn a total of 2,500 from holding The Home Depot or generate 37.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.21% |
| Values | Daily Returns |
Eaton plc vs. The Home Depot
Performance |
| Timeline |
| Eaton plc |
| Home Depot |
Eaton Plc and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton Plc and Home Depot
The main advantage of trading using opposite Eaton Plc and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton Plc position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.| Eaton Plc vs. Align Technology | Eaton Plc vs. Delta Air Lines | Eaton Plc vs. Marvell Technology | Eaton Plc vs. Telecomunicaes Brasileiras SA |
| Home Depot vs. Fundo Investimento Imobiliario | Home Depot vs. LESTE FDO INV | Home Depot vs. Fras le SA | Home Depot vs. Western Digital |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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