Correlation Between Eaton PLC and Barnes

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

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

Diversification Opportunities for Eaton PLC and Barnes

0.61

Correlation Coefficient

Eaton PLC  Barnes

Poor diversification

The 3 months correlation between Eaton and Barnes is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Barnes Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barnes 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 Barnes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barnes Group has no effect on the direction of Eaton PLC i.e., Eaton PLC and Barnes go up and down completely randomly.

Pair Corralation between Eaton PLC and Barnes

Considering the 90-day investment horizon Eaton PLC is expected to under-perform the Barnes. In addition to that, Eaton PLC is 13.38 times more volatile than Barnes Group. It trades about -0.19 of its total potential returns per unit of risk. Barnes Group is currently generating about 0.35 per unit of volatility. If you would invest  4,674  in Barnes Group on September 21, 2024 and sell it today you would earn a total of  39.00  from holding Barnes Group or generate 0.83% return on investment over 90 days.

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

Eaton PLC  vs.  Barnes Group

Eaton PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Eaton PLC is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Barnes Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Barnes Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, Barnes sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eaton PLC and Barnes

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

The idea behind Eaton PLC and Barnes Group 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.