Correlation Between Eaton PLC and FuelCell Energy

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

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

Diversification Opportunities for Eaton PLC and FuelCell Energy

-0.27

Correlation Coefficient

Eaton PLC  FuelCell Energy

Very good diversification

The 3 months correlation between Eaton and FuelCell is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy 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 FuelCell Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FuelCell Energy has no effect on the direction of Eaton PLC i.e., Eaton PLC and FuelCell Energy go up and down completely randomly.

Pair Corralation between Eaton PLC and FuelCell Energy

Assuming the 90 days horizon Eaton PLC is expected to generate 0.27 times more return on investment than FuelCell Energy. However, Eaton PLC is 3.64 times less risky than FuelCell Energy. It trades about 0.05 of its potential returns per unit of risk. FuelCell Energy is currently generating about -0.02 per unit of risk. If you would invest  29,053  in Eaton PLC on September 26, 2024 and sell it today you would earn a total of  3,447  from holding Eaton PLC or generate 11.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.22%
Values	Daily Returns

Eaton PLC  vs.  FuelCell Energy

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.

FuelCell Energy

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FuelCell Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FuelCell Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eaton PLC and FuelCell Energy

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

The idea behind Eaton PLC and FuelCell Energy 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.