Correlation Between Eaton PLC and American Superconductor
Can any of the company-specific risk be diversified away by investing in both Eaton PLC and American Superconductor 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 American Superconductor into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton PLC and American Superconductor, you can compare the effects of market volatilities on Eaton PLC and American Superconductor 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 American Superconductor. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and American Superconductor.
Diversification Opportunities for Eaton PLC and American Superconductor
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Eaton and American is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and American Superconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Superconductor 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 American Superconductor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Superconductor has no effect on the direction of Eaton PLC i.e., Eaton PLC and American Superconductor go up and down completely randomly.
Pair Corralation between Eaton PLC and American Superconductor
Considering the 90-day investment horizon Eaton PLC is expected to generate 1.83 times less return on investment than American Superconductor. But when comparing it to its historical volatility, Eaton PLC is 3.61 times less risky than American Superconductor. It trades about 0.31 of its potential returns per unit of risk. American Superconductor is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,854 in American Superconductor on September 2, 2024 and sell it today you would earn a total of 552.00 from holding American Superconductor or generate 19.34% 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. American Superconductor
Performance |
| Timeline |
| Eaton PLC |
| American Superconductor |
Eaton PLC and American Superconductor Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton PLC and American Superconductor
The main advantage of trading using opposite Eaton PLC and American Superconductor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC position performs unexpectedly, American Superconductor 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 American Superconductor will offset losses from the drop in American Superconductor's long position.| Eaton PLC vs. Illinois Tool Works | Eaton PLC vs. Dover | Eaton PLC vs. Cummins | Eaton PLC vs. Parker Hannifin |
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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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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