Correlation Between Eaton PLC and Pentair PLC

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

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

Diversification Opportunities for Eaton PLC and Pentair PLC

0.86

Correlation Coefficient

Eaton PLC  Pentair PLC

Very poor diversification

The 3 months correlation between Eaton and Pentair is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Pentair PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pentair PLC 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 Pentair PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pentair PLC has no effect on the direction of Eaton PLC i.e., Eaton PLC and Pentair PLC go up and down completely randomly.

Pair Corralation between Eaton PLC and Pentair PLC

Considering the 90-day investment horizon Eaton PLC is expected to under-perform the Pentair PLC. In addition to that, Eaton PLC is 2.05 times more volatile than Pentair PLC. It trades about -0.16 of its total potential returns per unit of risk. Pentair PLC is currently generating about -0.21 per unit of volatility. If you would invest  10,873  in Pentair PLC on November 28, 2024 and sell it today you would lose (1,539) from holding Pentair PLC or give up 14.15% 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.  Pentair PLC

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. In spite of abnormal performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pentair PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pentair PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with abnormal performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in March 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Eaton PLC and Pentair PLC

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

The idea behind Eaton PLC and Pentair 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.