Correlation Between Apple and EatonPLC

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

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

Diversification Opportunities for Apple and EatonPLC

0.86

Correlation Coefficient

Apple  EatonPLC

Very poor diversification

The 3 months correlation between Apple and EatonPLC is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Apple 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 Apple Inc 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 Apple i.e., Apple and EatonPLC go up and down completely randomly.

Pair Corralation between Apple and EatonPLC

Assuming the 90 days trading horizon Apple is expected to generate 2.89 times less return on investment than EatonPLC. But when comparing it to its historical volatility, Apple Inc is 1.29 times less risky than EatonPLC. It trades about 0.09 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  27,790  in Eaton PLC on September 2, 2024 and sell it today you would earn a total of  7,810  from holding Eaton PLC or generate 28.1% return on investment over 90 days.

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

Apple Inc  vs.  Eaton PLC

Apple Inc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental indicators, Apple may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Eaton PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, EatonPLC reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Apple and EatonPLC

The main advantage of trading using opposite Apple and EatonPLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Apple 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 Apple Inc 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.