Correlation Between Eaton PLC and Shanghai Electric

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

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

Diversification Opportunities for Eaton PLC and Shanghai Electric

0.08

Correlation Coefficient

Eaton PLC  Shanghai Electric

Significant diversification

The 3 months correlation between Eaton and Shanghai is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Shanghai Electric Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Shanghai Electric 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 Shanghai Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Shanghai Electric has no effect on the direction of Eaton PLC i.e., Eaton PLC and Shanghai Electric go up and down completely randomly.

Pair Corralation between Eaton PLC and Shanghai Electric

Considering the 90-day investment horizon Eaton PLC is expected to under-perform the Shanghai Electric. But the stock apears to be less risky and, when comparing its historical volatility, Eaton PLC is 1.23 times less risky than Shanghai Electric. The stock trades about -0.09 of its potential returns per unit of risk. The Shanghai Electric Group is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  780.00  in Shanghai Electric Group on December 29, 2024 and sell it today you would lose (65.00) from holding Shanghai Electric Group or give up 8.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.31%
Values	Daily Returns

Eaton PLC  vs.  Shanghai Electric Group

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.

Shanghai Electric

Risk-Adjusted Performance

Very Weak

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

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

The idea behind Eaton PLC and Shanghai Electric Group 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.