Correlation Between Eaton PLC and Rosinbomb

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

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

Diversification Opportunities for Eaton PLC and Rosinbomb

-0.66

Correlation Coefficient

Eaton PLC  Rosinbomb

Excellent diversification

The 3 months correlation between Eaton and Rosinbomb is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Rosinbomb in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rosinbomb 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 Rosinbomb. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rosinbomb has no effect on the direction of Eaton PLC i.e., Eaton PLC and Rosinbomb go up and down completely randomly.

Pair Corralation between Eaton PLC and Rosinbomb

Considering the 90-day investment horizon Eaton PLC is expected to generate 0.09 times more return on investment than Rosinbomb. However, Eaton PLC is 10.64 times less risky than Rosinbomb. It trades about 0.27 of its potential returns per unit of risk. Rosinbomb is currently generating about -0.01 per unit of risk. If you would invest  28,857  in Eaton PLC on September 7, 2024 and sell it today you would earn a total of  8,265  from holding Eaton PLC or generate 28.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Eaton PLC  vs.  Rosinbomb

Eaton PLC

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 20 (%) 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.

Rosinbomb

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rosinbomb has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Eaton PLC and Rosinbomb

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

The idea behind Eaton PLC and Rosinbomb 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 Transaction History module to view history of all your transactions and understand their impact on performance.