Correlation Between Eaton PLC and Hillenbrand

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

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

Diversification Opportunities for Eaton PLC and Hillenbrand

0.67

Correlation Coefficient

Eaton PLC  Hillenbrand

Poor diversification

The 3 months correlation between Eaton and Hillenbrand is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Hillenbrand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hillenbrand 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 Hillenbrand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hillenbrand has no effect on the direction of Eaton PLC i.e., Eaton PLC and Hillenbrand go up and down completely randomly.

Pair Corralation between Eaton PLC and Hillenbrand

Considering the 90-day investment horizon Eaton PLC is expected to generate 0.75 times more return on investment than Hillenbrand. However, Eaton PLC is 1.33 times less risky than Hillenbrand. It trades about 0.1 of its potential returns per unit of risk. Hillenbrand is currently generating about -0.01 per unit of risk. If you would invest  15,607  in Eaton PLC on October 21, 2024 and sell it today you would earn a total of  19,021  from holding Eaton PLC or generate 121.87% 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.  Hillenbrand

Eaton PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eaton PLC has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Hillenbrand

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hillenbrand are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Hillenbrand demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eaton PLC and Hillenbrand

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

The idea behind Eaton PLC and Hillenbrand 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 Global Correlations module to find global opportunities by holding instruments from different markets.