Correlation Between EatonPLC and ABB

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

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

Diversification Opportunities for EatonPLC and ABB

0.53

Correlation Coefficient

EatonPLC  ABB

Very weak diversification

The 3 months correlation between EatonPLC and ABB is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and ABB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABB 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 ABB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABB has no effect on the direction of EatonPLC i.e., EatonPLC and ABB go up and down completely randomly.

Pair Corralation between EatonPLC and ABB

Assuming the 90 days horizon Eaton PLC is expected to generate 1.03 times more return on investment than ABB. However, EatonPLC is 1.03 times more volatile than ABB. It trades about 0.11 of its potential returns per unit of risk. ABB is currently generating about 0.07 per unit of risk. If you would invest  13,528  in Eaton PLC on October 11, 2024 and sell it today you would earn a total of  19,962  from holding Eaton PLC or generate 147.56% return on investment over 90 days.

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

Eaton PLC  vs.  ABB

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 uncertain basic indicators, EatonPLC may actually be approaching a critical reversion point that can send shares even higher in February 2025.

ABB

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ABB are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, ABB is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with EatonPLC and ABB

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

The idea behind Eaton PLC and ABB 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.