Correlation Between Paycom Soft and EatonPLC

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Can any of the company-specific risk be diversified away by investing in both Paycom Soft and EatonPLC 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 Paycom Soft and EatonPLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Paycom Soft and Eaton PLC, you can compare the effects of market volatilities on Paycom Soft and EatonPLC 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 Paycom Soft with a short position of EatonPLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Paycom Soft and EatonPLC.

Diversification Opportunities for Paycom Soft and EatonPLC

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between Paycom and EatonPLC is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Paycom Soft and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Paycom Soft 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 Paycom Soft are associated (or correlated) with EatonPLC. 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 Paycom Soft i.e., Paycom Soft and EatonPLC go up and down completely randomly.

Pair Corralation between Paycom Soft and EatonPLC

Given the investment horizon of 90 days Paycom Soft is expected to generate 1.62 times more return on investment than EatonPLC. However, Paycom Soft is 1.62 times more volatile than Eaton PLC. It trades about 0.22 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.27 per unit of risk. If you would invest  15,466  in Paycom Soft on September 6, 2024 and sell it today you would earn a total of  7,708  from holding Paycom Soft or generate 49.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Paycom Soft  vs.  Eaton PLC

 Performance 
       Timeline  
Paycom Soft 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Paycom Soft are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Paycom Soft exhibited solid returns over the last few months and may actually be approaching a breakup point.
Eaton PLC 

Risk-Adjusted Performance

21 of 100

 
Weak
 
Strong
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. Despite nearly unsteady basic indicators, EatonPLC reported solid returns over the last few months and may actually be approaching a breakup point.

Paycom Soft and EatonPLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Paycom Soft and EatonPLC

The main advantage of trading using opposite Paycom Soft and EatonPLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Paycom Soft position performs unexpectedly, EatonPLC 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 EatonPLC will offset losses from the drop in EatonPLC's long position.
The idea behind Paycom Soft 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.
Check out your portfolio center.
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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.

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