Correlation Between Eaton PLC and Sabre Insurance

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

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

Diversification Opportunities for Eaton PLC and Sabre Insurance

-0.69

Correlation Coefficient

Eaton PLC  Sabre Insurance

Excellent diversification

The 3 months correlation between Eaton and Sabre is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Sabre Insurance Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sabre Insurance Group 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 Sabre Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sabre Insurance Group has no effect on the direction of Eaton PLC i.e., Eaton PLC and Sabre Insurance go up and down completely randomly.

Pair Corralation between Eaton PLC and Sabre Insurance

Assuming the 90 days horizon Eaton PLC is expected to generate 0.88 times more return on investment than Sabre Insurance. However, Eaton PLC is 1.13 times less risky than Sabre Insurance. It trades about 0.1 of its potential returns per unit of risk. Sabre Insurance Group is currently generating about 0.02 per unit of risk. If you would invest  20,661  in Eaton PLC on September 27, 2024 and sell it today you would earn a total of  11,839  from holding Eaton PLC or generate 57.3% return on investment over 90 days.

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

Eaton PLC  vs.  Sabre Insurance Group

Eaton PLC

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 5 (%) 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.

Sabre Insurance Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sabre Insurance Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Sabre Insurance 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 Sabre Insurance

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

The idea behind Eaton PLC and Sabre Insurance Group 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.