Correlation Between Eaton PLC and China Automotive
Can any of the company-specific risk be diversified away by investing in both Eaton PLC and China Automotive 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 China Automotive into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton PLC and China Automotive Systems, you can compare the effects of market volatilities on Eaton PLC and China Automotive 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 China Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and China Automotive.
Diversification Opportunities for Eaton PLC and China Automotive
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Eaton and China is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and China Automotive Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Automotive Systems 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 China Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Automotive Systems has no effect on the direction of Eaton PLC i.e., Eaton PLC and China Automotive go up and down completely randomly.
Pair Corralation between Eaton PLC and China Automotive
Considering the 90-day investment horizon Eaton PLC is expected to generate 1.87 times less return on investment than China Automotive. But when comparing it to its historical volatility, Eaton PLC is 1.66 times less risky than China Automotive. It trades about 0.07 of its potential returns per unit of risk. China Automotive Systems is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 341.00 in China Automotive Systems on September 1, 2024 and sell it today you would earn a total of 103.00 from holding China Automotive Systems or generate 30.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eaton PLC vs. China Automotive Systems
Performance |
| Timeline |
| Eaton PLC |
| China Automotive Systems |
Eaton PLC and China Automotive Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton PLC and China Automotive
The main advantage of trading using opposite Eaton PLC and China Automotive positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC position performs unexpectedly, China Automotive 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 China Automotive will offset losses from the drop in China Automotive'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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.
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