Correlation Between Eaton PLC and SMC Corp
Can any of the company-specific risk be diversified away by investing in both Eaton PLC and SMC Corp 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 SMC Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Eaton PLC and SMC Corp Japan, you can compare the effects of market volatilities on Eaton PLC and SMC Corp 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 SMC Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and SMC Corp.
Diversification Opportunities for Eaton PLC and SMC Corp
Poor diversification
The 3 months correlation between Eaton and SMC is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and SMC Corp Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMC Corp Japan 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 SMC Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMC Corp Japan has no effect on the direction of Eaton PLC i.e., Eaton PLC and SMC Corp go up and down completely randomly.
Pair Corralation between Eaton PLC and SMC Corp
Considering the 90-day investment horizon Eaton PLC is expected to under-perform the SMC Corp. In addition to that, Eaton PLC is 1.36 times more volatile than SMC Corp Japan. It trades about -0.15 of its total potential returns per unit of risk. SMC Corp Japan is currently generating about -0.12 per unit of volatility. If you would invest 2,124 in SMC Corp Japan on November 27, 2024 and sell it today you would lose (286.00) from holding SMC Corp Japan or give up 13.47% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Eaton PLC vs. SMC Corp Japan
Performance |
| Timeline |
| Eaton PLC |
| SMC Corp Japan |
Eaton PLC and SMC Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Eaton PLC and SMC Corp
The main advantage of trading using opposite Eaton PLC and SMC Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC position performs unexpectedly, SMC Corp 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 SMC Corp will offset losses from the drop in SMC Corp'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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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