Correlation Between Eaton PLC and Babcock Wilcox

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

By analyzing existing cross correlation between Eaton PLC and Babcock Wilcox Enterprises, you can compare the effects of market volatilities on Eaton PLC and Babcock Wilcox 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 Babcock Wilcox. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and Babcock Wilcox.

Diversification Opportunities for Eaton PLC and Babcock Wilcox

-0.4

Correlation Coefficient

Eaton PLC  Babcock Wilcox

Very good diversification

The 3 months correlation between Eaton and Babcock is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Babcock Wilcox Enterprises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Babcock Wilcox Enter 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 Babcock Wilcox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Babcock Wilcox Enter has no effect on the direction of Eaton PLC i.e., Eaton PLC and Babcock Wilcox go up and down completely randomly.

Pair Corralation between Eaton PLC and Babcock Wilcox

Considering the 90-day investment horizon Eaton PLC is expected to generate 1.24 times less return on investment than Babcock Wilcox. But when comparing it to its historical volatility, Eaton PLC is 2.24 times less risky than Babcock Wilcox. It trades about 0.1 of its potential returns per unit of risk. Babcock Wilcox Enterprises is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  960.00  in Babcock Wilcox Enterprises on September 14, 2024 and sell it today you would earn a total of  424.00  from holding Babcock Wilcox Enterprises or generate 44.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.6%
Values	Daily Returns

Eaton PLC  vs.  Babcock Wilcox Enterprises

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. In spite of very abnormal basic indicators, Eaton PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Babcock Wilcox Enter

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Eaton PLC and Babcock Wilcox

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

The idea behind Eaton PLC and Babcock Wilcox Enterprises 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.