Correlation Between Eaton Plc and Mitsubishi UFJ

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

By analyzing existing cross correlation between Eaton plc and Mitsubishi UFJ Financial, you can compare the effects of market volatilities on Eaton Plc and Mitsubishi UFJ 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 Mitsubishi UFJ. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton Plc and Mitsubishi UFJ.

Diversification Opportunities for Eaton Plc and Mitsubishi UFJ

0.93

Correlation Coefficient

Eaton Plc  Mitsubishi UFJ

Almost no diversification

The 3 months correlation between Eaton and Mitsubishi is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Eaton plc and Mitsubishi UFJ Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mitsubishi UFJ Financial 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 Mitsubishi UFJ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mitsubishi UFJ Financial has no effect on the direction of Eaton Plc i.e., Eaton Plc and Mitsubishi UFJ go up and down completely randomly.

Pair Corralation between Eaton Plc and Mitsubishi UFJ

Assuming the 90 days trading horizon Eaton plc is expected to under-perform the Mitsubishi UFJ. But the stock apears to be less risky and, when comparing its historical volatility, Eaton plc is 1.35 times less risky than Mitsubishi UFJ. The stock trades about -0.18 of its potential returns per unit of risk. The Mitsubishi UFJ Financial is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  6,888  in Mitsubishi UFJ Financial on September 28, 2024 and sell it today you would earn a total of  315.00  from holding Mitsubishi UFJ Financial or generate 4.57% return on investment over 90 days.

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

Eaton plc  vs.  Mitsubishi UFJ Financial

Eaton plc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Eaton Plc sustained solid returns over the last few months and may actually be approaching a breakup point.

Mitsubishi UFJ Financial

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mitsubishi UFJ Financial are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mitsubishi UFJ sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eaton Plc and Mitsubishi UFJ

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

The idea behind Eaton plc and Mitsubishi UFJ Financial 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.