Correlation Between Dow Jones and Eaton PLC
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Eaton PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Eaton PLC, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Eaton PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Eaton PLC.
Diversification Opportunities for Dow Jones and Eaton PLC
Almost no diversification
The 3 months correlation between Dow and Eaton is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Eaton PLC go up and down completely randomly.
Pair Corralation between Dow Jones and Eaton PLC
Assuming the 90 days trading horizon Dow Jones is expected to generate 3.34 times less return on investment than Eaton PLC. But when comparing it to its historical volatility, Dow Jones Industrial is 2.63 times less risky than Eaton PLC. It trades about 0.2 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 25,970 in Eaton PLC on September 10, 2024 and sell it today you would earn a total of 9,235 from holding Eaton PLC or generate 35.56% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 98.46% |
Values | Daily Returns |
Dow Jones Industrial vs. Eaton PLC
Performance |
Timeline |
Dow Jones and Eaton PLC Volatility Contrast
Predicted Return Density |
Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Eaton PLC
Pair trading matchups for Eaton PLC
Pair Trading with Dow Jones and Eaton PLC
The main advantage of trading using opposite Dow Jones and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.Dow Jones vs. SEI Investments | Dow Jones vs. Morgan Stanley | Dow Jones vs. CDW Corp | Dow Jones vs. Independence Realty Trust |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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