Correlation Between GM and Eaton Plc
Can any of the company-specific risk be diversified away by investing in both GM and Eaton Plc 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 GM and Eaton Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Eaton plc, you can compare the effects of market volatilities on GM and Eaton Plc 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 GM with a short position of Eaton Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Eaton Plc.
Diversification Opportunities for GM and Eaton Plc
Very poor diversification
The 3 months correlation between GM and Eaton is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Eaton plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton plc and GM 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 General Motors are associated (or correlated) with Eaton Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton plc has no effect on the direction of GM i.e., GM and Eaton Plc go up and down completely randomly.
Pair Corralation between GM and Eaton Plc
Allowing for the 90-day total investment horizon GM is expected to generate 1.33 times less return on investment than Eaton Plc. In addition to that, GM is 1.12 times more volatile than Eaton plc. It trades about 0.11 of its total potential returns per unit of risk. Eaton plc is currently generating about 0.17 per unit of volatility. If you would invest 7,877 in Eaton plc on September 2, 2024 and sell it today you would earn a total of 8,223 from holding Eaton plc or generate 104.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.2% |
| Values | Daily Returns |
General Motors vs. Eaton plc
Performance |
| Timeline |
| General Motors |
| Eaton plc |
GM and Eaton Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Eaton Plc
The main advantage of trading using opposite GM and Eaton Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM position performs unexpectedly, Eaton Plc 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 Eaton Plc will offset losses from the drop in Eaton Plc's long position.The idea behind General Motors and Eaton plc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Eaton Plc vs. Planet Fitness | Eaton Plc vs. Deutsche Bank Aktiengesellschaft | Eaton Plc vs. CVS Health | Eaton Plc vs. Bread Financial Holdings |
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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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