Correlation Between Eaton Plc and UnitedHealth Group

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

By analyzing existing cross correlation between Eaton plc and UnitedHealth Group Incorporated, you can compare the effects of market volatilities on Eaton Plc and UnitedHealth Group 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 UnitedHealth Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton Plc and UnitedHealth Group.

Diversification Opportunities for Eaton Plc and UnitedHealth Group

0.71

Correlation Coefficient

Eaton Plc  UnitedHealth Group

Poor diversification

The 3 months correlation between Eaton and UnitedHealth is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Eaton plc and UnitedHealth Group Incorporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UnitedHealth Group 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 UnitedHealth Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UnitedHealth Group has no effect on the direction of Eaton Plc i.e., Eaton Plc and UnitedHealth Group go up and down completely randomly.

Pair Corralation between Eaton Plc and UnitedHealth Group

Assuming the 90 days trading horizon Eaton plc is expected to generate 0.76 times more return on investment than UnitedHealth Group. However, Eaton plc is 1.32 times less risky than UnitedHealth Group. It trades about 0.25 of its potential returns per unit of risk. UnitedHealth Group Incorporated is currently generating about -0.02 per unit of risk. If you would invest  11,957  in Eaton plc on September 14, 2024 and sell it today you would earn a total of  3,537  from holding Eaton plc or generate 29.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Eaton plc  vs.  UnitedHealth Group Incorporate

Eaton plc

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton plc are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eaton Plc sustained solid returns over the last few months and may actually be approaching a breakup point.

UnitedHealth Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UnitedHealth Group Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, UnitedHealth Group 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 UnitedHealth Group

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

The idea behind Eaton plc and UnitedHealth Group Incorporated 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.