Correlation Between EatonPLC and New Residential

Can any of the company-specific risk be diversified away by investing in both EatonPLC 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 EatonPLC 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 EatonPLC 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 EatonPLC with a short position of New Residential. Check out your portfolio center. Please also check ongoing floating volatility patterns of EatonPLC and New Residential.

Diversification Opportunities for EatonPLC and New Residential

0.23

Correlation Coefficient

EatonPLC  New Residential

Modest diversification

The 3 months correlation between EatonPLC and New is 0.23. 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 EatonPLC 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 EatonPLC i.e., EatonPLC and New Residential go up and down completely randomly.

Pair Corralation between EatonPLC and New Residential

Assuming the 90 days horizon EatonPLC is expected to generate 2.77 times less return on investment than New Residential. But when comparing it to its historical volatility, Eaton PLC is 1.13 times less risky than New Residential. It trades about 0.13 of its potential returns per unit of risk. New Residential Investment is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  1,005  in New Residential Investment on October 20, 2024 and sell it today you would earn a total of  76.00  from holding New Residential Investment or generate 7.56% return on investment over 90 days.

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

Eaton PLC  vs.  New Residential Investment

Eaton PLC

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, EatonPLC is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

New Residential Inve

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Residential Investment are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, New Residential reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EatonPLC and New Residential

The main advantage of trading using opposite EatonPLC and New Residential positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EatonPLC 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.