Correlation Between Amazon and Eaton PLC

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Can any of the company-specific risk be diversified away by investing in both Amazon and Eaton PLC 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 Amazon and Eaton PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Amazon Inc and Eaton PLC, you can compare the effects of market volatilities on Amazon and Eaton PLC 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 Amazon with a short position of Eaton PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Amazon and Eaton PLC.

Diversification Opportunities for Amazon and Eaton PLC

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Amazon and Eaton is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Amazon 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 Amazon Inc are associated (or correlated) with Eaton PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton PLC has no effect on the direction of Amazon i.e., Amazon and Eaton PLC go up and down completely randomly.

Pair Corralation between Amazon and Eaton PLC

Given the investment horizon of 90 days Amazon Inc is expected to generate 1.14 times more return on investment than Eaton PLC. However, Amazon is 1.14 times more volatile than Eaton PLC. It trades about 0.21 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.22 per unit of risk. If you would invest  21,005  in Amazon Inc on September 8, 2024 and sell it today you would earn a total of  1,698  from holding Amazon Inc or generate 8.08% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.45%
ValuesDaily Returns

Amazon Inc  vs.  Eaton PLC

 Performance 
       Timeline  
Amazon Inc 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.
Eaton PLC 

Risk-Adjusted Performance

20 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eaton PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Amazon and Eaton PLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Eaton PLC

The main advantage of trading using opposite Amazon and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon position performs unexpectedly, Eaton PLC 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 Eaton PLC will offset losses from the drop in Eaton PLC's long position.
The idea behind Amazon Inc and Eaton PLC 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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