Correlation Between GP Investments and Eaton Plc

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

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

Diversification Opportunities for GP Investments and Eaton Plc

-0.04

Correlation Coefficient

GP Investments  Eaton Plc

Good diversification

The 3 months correlation between GPIV33 and Eaton is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding GP Investments and Eaton plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton plc and GP Investments 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 GP Investments are associated (or correlated) with Eaton Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton plc has no effect on the direction of GP Investments i.e., GP Investments and Eaton Plc go up and down completely randomly.

Pair Corralation between GP Investments and Eaton Plc

Assuming the 90 days trading horizon GP Investments is expected to generate 1.21 times more return on investment than Eaton Plc. However, GP Investments is 1.21 times more volatile than Eaton plc. It trades about -0.01 of its potential returns per unit of risk. Eaton plc is currently generating about -0.13 per unit of risk. If you would invest  390.00  in GP Investments on December 31, 2024 and sell it today you would lose (22.00) from holding GP Investments or give up 5.64% of portfolio value over 90 days.

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

GP Investments  vs.  Eaton plc

GP Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days GP Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, GP Investments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in May 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with GP Investments and Eaton Plc

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

The idea behind GP Investments and Eaton 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.