Correlation Between Eaton PLC and Schneider Electric

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

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

Diversification Opportunities for Eaton PLC and Schneider Electric

0.26

Correlation Coefficient

Eaton PLC  Schneider Electric

Modest diversification

The 3 months correlation between Eaton and Schneider is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Schneider Electric SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schneider Electric 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 Schneider Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schneider Electric has no effect on the direction of Eaton PLC i.e., Eaton PLC and Schneider Electric go up and down completely randomly.

Pair Corralation between Eaton PLC and Schneider Electric

Considering the 90-day investment horizon Eaton PLC is expected to generate 0.68 times more return on investment than Schneider Electric. However, Eaton PLC is 1.46 times less risky than Schneider Electric. It trades about 0.27 of its potential returns per unit of risk. Schneider Electric SE is currently generating about 0.01 per unit of risk. If you would invest  28,892  in Eaton PLC on August 31, 2024 and sell it today you would earn a total of  8,306  from holding Eaton PLC or generate 28.75% return on investment over 90 days.

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

Eaton PLC  vs.  Schneider Electric SE

Eaton PLC

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 21 (%) 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.

Schneider Electric

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Schneider Electric SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Schneider Electric is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Eaton PLC and Schneider Electric

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

The idea behind Eaton PLC and Schneider Electric SE 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.