Correlation Between Eaton PLC and NGK Insulators
Can any of the company-specific risk be diversified away by investing in both Eaton PLC and NGK Insulators 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 NGK Insulators into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton PLC and NGK Insulators, you can compare the effects of market volatilities on Eaton PLC and NGK Insulators 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 NGK Insulators. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and NGK Insulators.
Diversification Opportunities for Eaton PLC and NGK Insulators
0.51 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Eaton and NGK is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and NGK Insulators in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGK Insulators 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 NGK Insulators. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGK Insulators has no effect on the direction of Eaton PLC i.e., Eaton PLC and NGK Insulators go up and down completely randomly.
Pair Corralation between Eaton PLC and NGK Insulators
Considering the 90-day investment horizon Eaton PLC is expected to generate 1.19 times more return on investment than NGK Insulators. However, Eaton PLC is 1.19 times more volatile than NGK Insulators. It trades about 0.07 of its potential returns per unit of risk. NGK Insulators is currently generating about -0.02 per unit of risk. If you would invest 28,892 in Eaton PLC on November 2, 2024 and sell it today you would earn a total of 3,818 from holding Eaton PLC or generate 13.21% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 98.06% |
| Values | Daily Returns |
Eaton PLC vs. NGK Insulators
Performance |
| Timeline |
| Eaton PLC |
| NGK Insulators |
Eaton PLC and NGK Insulators Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton PLC and NGK Insulators
The main advantage of trading using opposite Eaton PLC and NGK Insulators positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC position performs unexpectedly, NGK Insulators 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 NGK Insulators will offset losses from the drop in NGK Insulators' 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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