Correlation Between EatonPLC and GrafTech International

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

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

Diversification Opportunities for EatonPLC and GrafTech International

0.82

Correlation Coefficient

EatonPLC  GrafTech International

Very poor diversification

The 3 months correlation between EatonPLC and GrafTech is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and GrafTech International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GrafTech International 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 GrafTech International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GrafTech International has no effect on the direction of EatonPLC i.e., EatonPLC and GrafTech International go up and down completely randomly.

Pair Corralation between EatonPLC and GrafTech International

Assuming the 90 days horizon Eaton PLC is expected to generate 0.32 times more return on investment than GrafTech International. However, Eaton PLC is 3.09 times less risky than GrafTech International. It trades about 0.06 of its potential returns per unit of risk. GrafTech International is currently generating about 0.02 per unit of risk. If you would invest  30,471  in Eaton PLC on October 5, 2024 and sell it today you would earn a total of  1,809  from holding Eaton PLC or generate 5.94% return on investment over 90 days.

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

Eaton PLC  vs.  GrafTech International

Eaton PLC

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Eaton PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak basic indicators, EatonPLC may actually be approaching a critical reversion point that can send shares even higher in February 2025.

GrafTech International

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days GrafTech International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, GrafTech International may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with EatonPLC and GrafTech International

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

The idea behind Eaton PLC and GrafTech International 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.