Correlation Between Eaton PLC and Kadant
Can any of the company-specific risk be diversified away by investing in both Eaton PLC and Kadant 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 Kadant into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton PLC and Kadant Inc, you can compare the effects of market volatilities on Eaton PLC and Kadant 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 Kadant. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and Kadant.
Diversification Opportunities for Eaton PLC and Kadant
Very poor diversification
The 3 months correlation between Eaton and Kadant is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Kadant Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kadant Inc 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 Kadant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kadant Inc has no effect on the direction of Eaton PLC i.e., Eaton PLC and Kadant go up and down completely randomly.
Pair Corralation between Eaton PLC and Kadant
Considering the 90-day investment horizon Eaton PLC is expected to generate 0.89 times more return on investment than Kadant. However, Eaton PLC is 1.12 times less risky than Kadant. It trades about 0.11 of its potential returns per unit of risk. Kadant Inc is currently generating about 0.1 per unit of risk. If you would invest 15,356 in Eaton PLC on August 30, 2024 and sell it today you would earn a total of 21,842 from holding Eaton PLC or generate 142.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.8% |
| Values | Daily Returns |
Eaton PLC vs. Kadant Inc
Performance |
| Timeline |
| Eaton PLC |
| Kadant Inc |
Eaton PLC and Kadant Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton PLC and Kadant
The main advantage of trading using opposite Eaton PLC and Kadant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC position performs unexpectedly, Kadant 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 Kadant will offset losses from the drop in Kadant's long position.| Eaton PLC vs. Illinois Tool Works | Eaton PLC vs. Dover | Eaton PLC vs. Cummins | Eaton PLC vs. Parker Hannifin |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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