Correlation Between Howmet Aerospace and Eaton Plc

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

By analyzing existing cross correlation between Howmet Aerospace and Eaton plc, you can compare the effects of market volatilities on Howmet Aerospace 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 Howmet Aerospace with a short position of Eaton Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Howmet Aerospace and Eaton Plc.

Diversification Opportunities for Howmet Aerospace and Eaton Plc

-0.39

Correlation Coefficient

Howmet Aerospace  Eaton Plc

Very good diversification

The 3 months correlation between Howmet and Eaton is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Howmet Aerospace and Eaton plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton plc and Howmet Aerospace 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 Howmet Aerospace 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 Howmet Aerospace i.e., Howmet Aerospace and Eaton Plc go up and down completely randomly.

Pair Corralation between Howmet Aerospace and Eaton Plc

Assuming the 90 days trading horizon Howmet Aerospace is expected to generate 0.7 times more return on investment than Eaton Plc. However, Howmet Aerospace is 1.42 times less risky than Eaton Plc. It trades about 0.11 of its potential returns per unit of risk. Eaton plc is currently generating about -0.14 per unit of risk. If you would invest  68,065  in Howmet Aerospace on December 30, 2024 and sell it today you would earn a total of  8,858  from holding Howmet Aerospace or generate 13.01% return on investment over 90 days.

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

Howmet Aerospace  vs.  Eaton plc

Howmet Aerospace

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Howmet Aerospace are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Howmet Aerospace sustained solid returns over the last few months and may actually be approaching a breakup point.

Eaton plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eaton plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Howmet Aerospace and Eaton Plc

The main advantage of trading using opposite Howmet Aerospace and Eaton Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Howmet Aerospace 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 Howmet Aerospace 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.