Correlation Between Eaton PLC and Ingersoll Rand

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

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

Diversification Opportunities for Eaton PLC and Ingersoll Rand

0.83

Correlation Coefficient

Eaton PLC  Ingersoll Rand

Very poor diversification

The 3 months correlation between Eaton and Ingersoll is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Ingersoll Rand in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ingersoll Rand 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 Ingersoll Rand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ingersoll Rand has no effect on the direction of Eaton PLC i.e., Eaton PLC and Ingersoll Rand go up and down completely randomly.

Pair Corralation between Eaton PLC and Ingersoll Rand

Considering the 90-day investment horizon Eaton PLC is expected to generate 1.05 times more return on investment than Ingersoll Rand. However, Eaton PLC is 1.05 times more volatile than Ingersoll Rand. It trades about -0.19 of its potential returns per unit of risk. Ingersoll Rand is currently generating about -0.33 per unit of risk. If you would invest  36,046  in Eaton PLC on September 21, 2024 and sell it today you would lose (2,234) from holding Eaton PLC or give up 6.2% of portfolio value over 90 days.

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

Eaton PLC  vs.  Ingersoll Rand

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 current stock price disarray, may contribute to short-term losses for the investors.

Ingersoll Rand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ingersoll Rand has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Ingersoll Rand is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Eaton PLC and Ingersoll Rand

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

The idea behind Eaton PLC and Ingersoll Rand 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.

Check out your portfolio center.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..