Correlation Between Eaton PLC and Emerson Electric
Can any of the company-specific risk be diversified away by investing in both Eaton PLC and Emerson Electric 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 Emerson Electric into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton PLC and Emerson Electric, you can compare the effects of market volatilities on Eaton PLC and Emerson Electric 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 Emerson Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and Emerson Electric.
Diversification Opportunities for Eaton PLC and Emerson Electric
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Eaton and Emerson is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Emerson Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Emerson Electric 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 Emerson Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Emerson Electric has no effect on the direction of Eaton PLC i.e., Eaton PLC and Emerson Electric go up and down completely randomly.
Pair Corralation between Eaton PLC and Emerson Electric
Considering the 90-day investment horizon Eaton PLC is expected to generate 174.32 times less return on investment than Emerson Electric. In addition to that, Eaton PLC is 1.42 times more volatile than Emerson Electric. It trades about 0.0 of its total potential returns per unit of risk. Emerson Electric is currently generating about 0.18 per unit of volatility. If you would invest 10,802 in Emerson Electric on November 1, 2024 and sell it today you would earn a total of 2,242 from holding Emerson Electric or generate 20.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eaton PLC vs. Emerson Electric
Performance |
| Timeline |
| Eaton PLC |
| Emerson Electric |
Eaton PLC and Emerson Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton PLC and Emerson Electric
The main advantage of trading using opposite Eaton PLC and Emerson Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC position performs unexpectedly, Emerson Electric 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 Emerson Electric will offset losses from the drop in Emerson Electric'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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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