Correlation Between Eaton PLC and Aalberts

Can any of the company-specific risk be diversified away by investing in both Eaton PLC and Aalberts 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 Eaton PLC and Aalberts into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Eaton PLC and Aalberts NV, you can compare the effects of market volatilities on Eaton PLC and Aalberts 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 Eaton PLC with a short position of Aalberts. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and Aalberts.

Diversification Opportunities for Eaton PLC and Aalberts

0.88

Correlation Coefficient

Eaton PLC  Aalberts

Very poor diversification

The 3 months correlation between Eaton and Aalberts is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Aalberts NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aalberts NV and Eaton PLC 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 Eaton PLC are associated (or correlated) with Aalberts. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aalberts NV has no effect on the direction of Eaton PLC i.e., Eaton PLC and Aalberts go up and down completely randomly.

Pair Corralation between Eaton PLC and Aalberts

Considering the 90-day investment horizon Eaton PLC is expected to generate 1.45 times more return on investment than Aalberts. However, Eaton PLC is 1.45 times more volatile than Aalberts NV. It trades about -0.07 of its potential returns per unit of risk. Aalberts NV is currently generating about -0.36 per unit of risk. If you would invest  32,952  in Eaton PLC on February 5, 2024 and sell it today you would lose (902.00) from holding Eaton PLC or give up 2.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Eaton PLC  vs.  Aalberts NV

Eaton PLC

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Eaton PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Aalberts NV

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aalberts NV are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental drivers, Aalberts reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eaton PLC and Aalberts

The main advantage of trading using opposite Eaton PLC and Aalberts positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eaton PLC position performs unexpectedly, Aalberts 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 Aalberts will offset losses from the drop in Aalberts' long position.

The idea behind Eaton PLC and Aalberts NV 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.