Correlation Between Eaton PLC and Sandvik AB

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

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

Diversification Opportunities for Eaton PLC and Sandvik AB

-0.46

Correlation Coefficient

Eaton PLC  Sandvik AB

Very good diversification

The 3 months correlation between Eaton and Sandvik is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Sandvik AB ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandvik AB ADR 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 Sandvik AB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandvik AB ADR has no effect on the direction of Eaton PLC i.e., Eaton PLC and Sandvik AB go up and down completely randomly.

Pair Corralation between Eaton PLC and Sandvik AB

Considering the 90-day investment horizon Eaton PLC is expected to generate 0.89 times more return on investment than Sandvik AB. However, Eaton PLC is 1.13 times less risky than Sandvik AB. It trades about 0.28 of its potential returns per unit of risk. Sandvik AB ADR is currently generating about -0.09 per unit of risk. If you would invest  28,892  in Eaton PLC on September 2, 2024 and sell it today you would earn a total of  8,650  from holding Eaton PLC or generate 29.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Eaton PLC  vs.  Sandvik AB ADR

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.

Sandvik AB ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sandvik AB ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward-looking signals remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Eaton PLC and Sandvik AB

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

The idea behind Eaton PLC and Sandvik AB ADR 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.