Correlation Between Eaton PLC and Generac Holdings

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

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

Diversification Opportunities for Eaton PLC and Generac Holdings

0.91

Correlation Coefficient

Eaton PLC  Generac Holdings

Almost no diversification

The 3 months correlation between Eaton and Generac is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Generac Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Generac Holdings 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 Generac Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Generac Holdings has no effect on the direction of Eaton PLC i.e., Eaton PLC and Generac Holdings go up and down completely randomly.

Pair Corralation between Eaton PLC and Generac Holdings

Considering the 90-day investment horizon Eaton PLC is expected to generate 0.69 times more return on investment than Generac Holdings. However, Eaton PLC is 1.45 times less risky than Generac Holdings. It trades about 0.29 of its potential returns per unit of risk. Generac Holdings is currently generating about 0.19 per unit of risk. If you would invest  28,492  in Eaton PLC on September 5, 2024 and sell it today you would earn a total of  8,883  from holding Eaton PLC or generate 31.18% 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.  Generac Holdings

Eaton PLC

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 22 (%) 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.

Generac Holdings

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Generac Holdings are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Generac Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eaton PLC and Generac Holdings

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

The idea behind Eaton PLC and Generac Holdings 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.