Correlation Between Eaton PLC and Twin Disc

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

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

Diversification Opportunities for Eaton PLC and Twin Disc

-0.35

Correlation Coefficient

Eaton PLC  Twin Disc

Very good diversification

The 3 months correlation between Eaton and Twin is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Twin Disc Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Twin Disc 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 Twin Disc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Twin Disc has no effect on the direction of Eaton PLC i.e., Eaton PLC and Twin Disc go up and down completely randomly.

Pair Corralation between Eaton PLC and Twin Disc

Considering the 90-day investment horizon Eaton PLC is expected to generate 0.61 times more return on investment than Twin Disc. However, Eaton PLC is 1.65 times less risky than Twin Disc. It trades about 0.27 of its potential returns per unit of risk. Twin Disc Incorporated is currently generating about 0.02 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Eaton PLC  vs.  Twin Disc Incorporated

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.

Twin Disc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Twin Disc Incorporated are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Twin Disc is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Eaton PLC and Twin Disc

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

The idea behind Eaton PLC and Twin Disc Incorporated 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.