Correlation Between Eaton PLC and Shanghai Electric
Can any of the company-specific risk be diversified away by investing in both Eaton PLC and Shanghai 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 Shanghai 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 Shanghai Electric Group, you can compare the effects of market volatilities on Eaton PLC and Shanghai 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 Shanghai Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and Shanghai Electric.
Diversification Opportunities for Eaton PLC and Shanghai Electric
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Eaton and Shanghai is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Shanghai Electric Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai 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 Shanghai Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Electric has no effect on the direction of Eaton PLC i.e., Eaton PLC and Shanghai Electric go up and down completely randomly.
Pair Corralation between Eaton PLC and Shanghai Electric
Considering the 90-day investment horizon Eaton PLC is expected to generate 1.51 times less return on investment than Shanghai Electric. But when comparing it to its historical volatility, Eaton PLC is 3.13 times less risky than Shanghai Electric. It trades about 0.12 of its potential returns per unit of risk. Shanghai Electric Group is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 417.00 in Shanghai Electric Group on August 29, 2024 and sell it today you would earn a total of 346.00 from holding Shanghai Electric Group or generate 82.97% 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. Shanghai Electric Group
Performance |
| Timeline |
| Eaton PLC |
| Shanghai Electric |
Eaton PLC and Shanghai Electric Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton PLC and Shanghai Electric
The main advantage of trading using opposite Eaton PLC and Shanghai Electric positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC position performs unexpectedly, Shanghai 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 Shanghai Electric will offset losses from the drop in Shanghai Electric's long position.| Eaton PLC vs. China Automotive Systems | Eaton PLC vs. China Natural Resources | Eaton PLC vs. Sonida Senior Living | Eaton PLC vs. UTStarcom Holdings Corp |
| Shanghai Electric vs. Parker Hannifin | Shanghai Electric vs. Eaton PLC | Shanghai Electric vs. Dover | Shanghai Electric vs. Illinois Tool Works |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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