Correlation Between Unity Software and Eaton PLC

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

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

Diversification Opportunities for Unity Software and Eaton PLC

0.59

Correlation Coefficient

Unity Software  Eaton PLC

Very weak diversification

The 3 months correlation between Unity and Eaton is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Unity Software and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Unity Software 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 Unity Software 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 Unity Software i.e., Unity Software and Eaton PLC go up and down completely randomly.

Pair Corralation between Unity Software and Eaton PLC

Taking into account the 90-day investment horizon Unity Software is expected to generate 1.88 times more return on investment than Eaton PLC. However, Unity Software is 1.88 times more volatile than Eaton PLC. It trades about 0.18 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.19 per unit of risk. If you would invest  2,119  in Unity Software on September 8, 2024 and sell it today you would earn a total of  653.00  from holding Unity Software or generate 30.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.78%
Values	Daily Returns

Unity Software  vs.  Eaton PLC

Unity Software

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Unity Software are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Unity Software unveiled solid returns over the last few months and may actually be approaching a breakup point.

Eaton PLC

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Eaton PLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Unity Software and Eaton PLC

The main advantage of trading using opposite Unity Software and Eaton PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unity Software 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 Unity Software 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.