Correlation Between 3M and Eaton PLC
Can any of the company-specific risk be diversified away by investing in both 3M 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 3M and Eaton PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 3M Company and Eaton PLC, you can compare the effects of market volatilities on 3M 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 3M with a short position of Eaton PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of 3M and Eaton PLC.
Diversification Opportunities for 3M and Eaton PLC
Very weak diversification
The 3 months correlation between 3M and Eaton is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding 3M Company and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and 3M 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 3M Company 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 3M i.e., 3M and Eaton PLC go up and down completely randomly.
Pair Corralation between 3M and Eaton PLC
Assuming the 90 days horizon 3M is expected to generate 3.54 times less return on investment than Eaton PLC. In addition to that, 3M is 1.13 times more volatile than Eaton PLC. It trades about 0.03 of its total potential returns per unit of risk. Eaton PLC is currently generating about 0.11 per unit of volatility. If you would invest 14,221 in Eaton PLC on September 12, 2024 and sell it today you would earn a total of 21,149 from holding Eaton PLC or generate 148.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
3M Company vs. Eaton PLC
Performance |
| Timeline |
| 3M Company |
| Eaton PLC |
3M and Eaton PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 3M and Eaton PLC
The main advantage of trading using opposite 3M and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 3M 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.| 3M vs. Schneider Electric SE | 3M vs. Superior Plus Corp | 3M vs. SIVERS SEMICONDUCTORS AB | 3M vs. Norsk Hydro ASA |
| Eaton PLC vs. Schneider Electric SE | Eaton PLC vs. Superior Plus Corp | Eaton PLC vs. SIVERS SEMICONDUCTORS AB | Eaton PLC vs. Norsk Hydro ASA |
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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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