Correlation Between Eaton PLC and Brown Brown

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

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

Diversification Opportunities for Eaton PLC and Brown Brown

0.93

Correlation Coefficient

Eaton PLC  Brown Brown

Almost no diversification

The 3 months correlation between Eaton and Brown is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Brown Brown in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Brown 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 Brown Brown. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Brown has no effect on the direction of Eaton PLC i.e., Eaton PLC and Brown Brown go up and down completely randomly.

Pair Corralation between Eaton PLC and Brown Brown

Assuming the 90 days horizon Eaton PLC is expected to generate 1.66 times less return on investment than Brown Brown. In addition to that, Eaton PLC is 1.31 times more volatile than Brown Brown. It trades about 0.02 of its total potential returns per unit of risk. Brown Brown is currently generating about 0.05 per unit of volatility. If you would invest  9,619  in Brown Brown on September 27, 2024 and sell it today you would earn a total of  281.00  from holding Brown Brown or generate 2.92% return on investment over 90 days.

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

Eaton PLC  vs.  Brown Brown

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.

Brown Brown

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Eaton PLC and Brown Brown

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

The idea behind Eaton PLC and Brown Brown 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.