Correlation Between Raytheon Technologies and Eaton Plc
Can any of the company-specific risk be diversified away by investing in both Raytheon Technologies 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 Raytheon Technologies and Eaton Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Raytheon Technologies and Eaton plc, you can compare the effects of market volatilities on Raytheon Technologies 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 Raytheon Technologies with a short position of Eaton Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Raytheon Technologies and Eaton Plc.
Diversification Opportunities for Raytheon Technologies and Eaton Plc
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Raytheon and Eaton is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies and Eaton plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton plc and Raytheon Technologies 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 Raytheon Technologies 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 Raytheon Technologies i.e., Raytheon Technologies and Eaton Plc go up and down completely randomly.
Pair Corralation between Raytheon Technologies and Eaton Plc
Assuming the 90 days trading horizon Raytheon Technologies is expected to generate 1.12 times less return on investment than Eaton Plc. But when comparing it to its historical volatility, Raytheon Technologies is 1.22 times less risky than Eaton Plc. It trades about 0.18 of its potential returns per unit of risk. Eaton plc is currently generating about 0.17 of returns per unit of risk over similar time horizon. 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 | Significant |
| Accuracy | 94.8% |
| Values | Daily Returns |
Raytheon Technologies vs. Eaton plc
Performance |
| Timeline |
| Raytheon Technologies |
| Eaton plc |
Raytheon Technologies and Eaton Plc Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Raytheon Technologies and Eaton Plc
The main advantage of trading using opposite Raytheon Technologies and Eaton Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Raytheon Technologies 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.| Raytheon Technologies vs. Taurus Armas SA | Raytheon Technologies vs. Fras le SA | Raytheon Technologies vs. Western Digital | Raytheon Technologies vs. Energisa SA |
| 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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