Correlation Between SMC Corp and Eaton PLC
Can any of the company-specific risk be diversified away by investing in both SMC Corp 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 SMC Corp and Eaton PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SMC Corp Japan and Eaton PLC, you can compare the effects of market volatilities on SMC Corp 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 SMC Corp with a short position of Eaton PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of SMC Corp and Eaton PLC.
Diversification Opportunities for SMC Corp and Eaton PLC
Poor diversification
The 3 months correlation between SMC and Eaton is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding SMC Corp Japan and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and SMC Corp 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 SMC Corp Japan 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 SMC Corp i.e., SMC Corp and Eaton PLC go up and down completely randomly.
Pair Corralation between SMC Corp and Eaton PLC
Assuming the 90 days horizon SMC Corp Japan is expected to generate 0.74 times more return on investment than Eaton PLC. However, SMC Corp Japan is 1.36 times less risky than Eaton PLC. It trades about -0.12 of its potential returns per unit of risk. Eaton PLC is currently generating about -0.15 per unit of risk. 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 |
SMC Corp Japan vs. Eaton PLC
Performance |
| Timeline |
| SMC Corp Japan |
| Eaton PLC |
SMC Corp and Eaton PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SMC Corp and Eaton PLC
The main advantage of trading using opposite SMC Corp and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SMC Corp 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.| SMC Corp vs. Schneider Electric SE | SMC Corp vs. Atlas Copco AB | SMC Corp vs. Fanuc | SMC Corp vs. Sandvik AB |
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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