Correlation Between Eaton Plc and Howmet Aerospace

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

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

Diversification Opportunities for Eaton Plc and Howmet Aerospace

0.0

Correlation Coefficient

Eaton Plc  Howmet Aerospace

Pay attention - limited upside

The 3 months correlation between Eaton and Howmet is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Eaton plc and Howmet Aerospace in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Howmet Aerospace and Eaton Plc 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 Howmet Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Howmet Aerospace has no effect on the direction of Eaton Plc i.e., Eaton Plc and Howmet Aerospace go up and down completely randomly.

Pair Corralation between Eaton Plc and Howmet Aerospace

If you would invest (100.00) in Howmet Aerospace on October 23, 2024 and sell it today you would earn a total of  100.00  from holding Howmet Aerospace or generate -100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Eaton plc  vs.  Howmet Aerospace

Eaton plc

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Eaton plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Eaton Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Howmet Aerospace

Risk-Adjusted Performance

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Solid

Over the last 90 days Howmet Aerospace has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Howmet Aerospace is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Eaton Plc and Howmet Aerospace

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

The idea behind Eaton plc and Howmet Aerospace 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.