Correlation Between Eaton PLC and Regal Beloit

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

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

Diversification Opportunities for Eaton PLC and Regal Beloit

0.84

Correlation Coefficient

Eaton PLC  Regal Beloit

Very poor diversification

The 3 months correlation between Eaton and Regal is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Regal Beloit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Regal Beloit 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 Regal Beloit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Regal Beloit has no effect on the direction of Eaton PLC i.e., Eaton PLC and Regal Beloit go up and down completely randomly.

Pair Corralation between Eaton PLC and Regal Beloit

Considering the 90-day investment horizon Eaton PLC is expected to generate 1.27 times more return on investment than Regal Beloit. However, Eaton PLC is 1.27 times more volatile than Regal Beloit. It trades about -0.08 of its potential returns per unit of risk. Regal Beloit is currently generating about -0.17 per unit of risk. If you would invest  33,341  in Eaton PLC on December 27, 2024 and sell it today you would lose (5,250) from holding Eaton PLC or give up 15.75% 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.  Regal Beloit

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 April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Regal Beloit

Risk-Adjusted Performance

Very Weak

Over the last 90 days Regal Beloit has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Eaton PLC and Regal Beloit

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

The idea behind Eaton PLC and Regal Beloit 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.