Correlation Between Microsoft and Eaton PLC
Can any of the company-specific risk be diversified away by investing in both Microsoft 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 Microsoft and Eaton PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Microsoft and Eaton PLC, you can compare the effects of market volatilities on Microsoft 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 Microsoft with a short position of Eaton PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft and Eaton PLC.
Diversification Opportunities for Microsoft and Eaton PLC
Average diversification
The 3 months correlation between Microsoft and Eaton is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Eaton PLC go up and down completely randomly.
Pair Corralation between Microsoft and Eaton PLC
Given the investment horizon of 90 days Microsoft is expected to generate 6.95 times less return on investment than Eaton PLC. But when comparing it to its historical volatility, Microsoft is 1.62 times less risky than Eaton PLC. It trades about 0.03 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 22,388 in Eaton PLC on August 29, 2024 and sell it today you would earn a total of 13,387 from holding Eaton PLC or generate 59.8% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 98.58% |
| Values | Daily Returns |
Microsoft vs. Eaton PLC
Performance |
| Timeline |
| Microsoft |
| Eaton PLC |
Microsoft and Eaton PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Microsoft and Eaton PLC
The main advantage of trading using opposite Microsoft and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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.| Microsoft vs. Palo Alto Networks | Microsoft vs. Uipath Inc | Microsoft vs. Block Inc | Microsoft vs. Adobe Systems Incorporated |
| Eaton PLC vs. Mobilezone Holding AG | Eaton PLC vs. Luckin Coffee | Eaton PLC vs. ETFS Coffee ETC | Eaton PLC vs. Iridium Communications |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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