Correlation Between Eaton PLC and New Residential

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

By analyzing existing cross correlation between Eaton PLC and New Residential Investment, you can compare the effects of market volatilities on Eaton PLC and New Residential 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 New Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and New Residential.

Diversification Opportunities for Eaton PLC and New Residential

0.75

Correlation Coefficient

Eaton PLC  New Residential

Poor diversification

The 3 months correlation between Eaton and New is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and New Residential Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Residential Inve 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 New Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Residential Inve has no effect on the direction of Eaton PLC i.e., Eaton PLC and New Residential go up and down completely randomly.

Pair Corralation between Eaton PLC and New Residential

Assuming the 90 days horizon Eaton PLC is expected to generate 1.77 times more return on investment than New Residential. However, Eaton PLC is 1.77 times more volatile than New Residential Investment. It trades about 0.1 of its potential returns per unit of risk. New Residential Investment is currently generating about 0.08 per unit of risk. If you would invest  20,424  in Eaton PLC on September 23, 2024 and sell it today you would earn a total of  12,196  from holding Eaton PLC or generate 59.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Eaton PLC  vs.  New Residential Investment

Eaton PLC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eaton PLC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

New Residential Inve

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, New Residential is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eaton PLC and New Residential

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

The idea behind Eaton PLC and New Residential Investment 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.