Correlation Between Eaton PLC and Nidec

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

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

Diversification Opportunities for Eaton PLC and Nidec

-0.34

Correlation Coefficient

Eaton PLC  Nidec

Very good diversification

The 3 months correlation between Eaton and Nidec is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Nidec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nidec 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 Nidec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nidec has no effect on the direction of Eaton PLC i.e., Eaton PLC and Nidec go up and down completely randomly.

Pair Corralation between Eaton PLC and Nidec

If you would invest  18,406  in Eaton PLC on August 31, 2024 and sell it today you would earn a total of  19,136  from holding Eaton PLC or generate 103.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	0.27%
Values	Daily Returns

Eaton PLC  vs.  Nidec

Eaton PLC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Eaton PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Nidec

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nidec has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Nidec 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 Nidec

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

The idea behind Eaton PLC and Nidec 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.