Correlation Between Extra Space and Eaton Plc

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

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

Diversification Opportunities for Extra Space and Eaton Plc

0.55

Correlation Coefficient

Extra Space  Eaton Plc

Very weak diversification

The 3 months correlation between Extra and Eaton is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Extra Space Storage and Eaton plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton plc and Extra Space 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 Extra Space Storage 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 Extra Space i.e., Extra Space and Eaton Plc go up and down completely randomly.

Pair Corralation between Extra Space and Eaton Plc

Assuming the 90 days trading horizon Extra Space Storage is expected to generate 0.65 times more return on investment than Eaton Plc. However, Extra Space Storage is 1.55 times less risky than Eaton Plc. It trades about -0.06 of its potential returns per unit of risk. Eaton plc is currently generating about -0.11 per unit of risk. If you would invest  22,540  in Extra Space Storage on December 23, 2024 and sell it today you would lose (1,540) from holding Extra Space Storage or give up 6.83% of portfolio value over 90 days.

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

Extra Space Storage  vs.  Eaton plc

Extra Space Storage

Risk-Adjusted Performance

Very Weak

Over the last 90 days Extra Space Storage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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 weak 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 Extra Space and Eaton Plc

The main advantage of trading using opposite Extra Space and Eaton Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extra Space 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 Extra Space Storage 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.