Correlation Between Amazon and Eaton PLC

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

0.84

Correlation Coefficient

Amazon  Eaton PLC

Very poor diversification

The 3 months correlation between Amazon and Eaton is 0.84. 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 is expected to generate 1.02 times less return on investment than Eaton PLC. In addition to that, Amazon is 1.12 times more volatile than Eaton PLC. It trades about 0.21 of its total potential returns per unit of risk. Eaton PLC is currently generating about 0.23 per unit of volatility. If you would invest  33,240  in Eaton PLC on September 8, 2024 and sell it today you would earn a total of  2,760  from holding Eaton PLC or generate 8.3% return on investment over 90 days.

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

Amazon Inc  vs.  Eaton PLC

Amazon Inc

Risk-Adjusted Performance

18 of 100

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

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 21 (%) 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.

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.

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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.