Correlation Between Eaton PLC and Thermon Group

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

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

Diversification Opportunities for Eaton PLC and Thermon Group

0.65

Correlation Coefficient

Eaton PLC  Thermon Group

Poor diversification

The 3 months correlation between Eaton and Thermon is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Thermon Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Thermon Group 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 Thermon Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Thermon Group Holdings has no effect on the direction of Eaton PLC i.e., Eaton PLC and Thermon Group go up and down completely randomly.

Pair Corralation between Eaton PLC and Thermon Group

Considering the 90-day investment horizon Eaton PLC is expected to generate 0.78 times more return on investment than Thermon Group. However, Eaton PLC is 1.29 times less risky than Thermon Group. It trades about 0.04 of its potential returns per unit of risk. Thermon Group Holdings is currently generating about -0.01 per unit of risk. If you would invest  32,647  in Eaton PLC on September 24, 2024 and sell it today you would earn a total of  1,165  from holding Eaton PLC or generate 3.57% return on investment over 90 days.

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

Eaton PLC  vs.  Thermon Group Holdings

Eaton PLC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Eaton PLC is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Thermon Group Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Thermon Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Thermon Group is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Eaton PLC and Thermon Group

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

The idea behind Eaton PLC and Thermon Group 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.