Correlation Between Eaton PLC and PVA TePla

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

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

Diversification Opportunities for Eaton PLC and PVA TePla

-0.71

Correlation Coefficient

Eaton PLC  PVA TePla

Pay attention - limited upside

The 3 months correlation between Eaton and PVA is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and PVA TePla AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PVA TePla AG 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 PVA TePla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PVA TePla AG has no effect on the direction of Eaton PLC i.e., Eaton PLC and PVA TePla go up and down completely randomly.

Pair Corralation between Eaton PLC and PVA TePla

Considering the 90-day investment horizon Eaton PLC is expected to generate 0.49 times more return on investment than PVA TePla. However, Eaton PLC is 2.04 times less risky than PVA TePla. It trades about 0.04 of its potential returns per unit of risk. PVA TePla AG is currently generating about -0.04 per unit of risk. If you would invest  32,763  in Eaton PLC on September 25, 2024 and sell it today you would earn a total of  1,008  from holding Eaton PLC or generate 3.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Eaton PLC  vs.  PVA TePla AG

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.

PVA TePla AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PVA TePla AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward-looking signals remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Eaton PLC and PVA TePla

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

The idea behind Eaton PLC and PVA TePla AG 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.