Correlation Between Eaton PLC and Yokogawa Electric

Can any of the company-specific risk be diversified away by investing in both Eaton PLC and Yokogawa 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 Yokogawa 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 Yokogawa Electric Corp, you can compare the effects of market volatilities on Eaton PLC and Yokogawa 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 Yokogawa Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eaton PLC and Yokogawa Electric.

Diversification Opportunities for Eaton PLC and Yokogawa Electric

-0.78

Correlation Coefficient

Eaton PLC  Yokogawa Electric

Pay attention - limited upside

The 3 months correlation between Eaton and Yokogawa is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Eaton PLC and Yokogawa Electric Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yokogawa Electric Corp 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 Yokogawa Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yokogawa Electric Corp has no effect on the direction of Eaton PLC i.e., Eaton PLC and Yokogawa Electric go up and down completely randomly.

Pair Corralation between Eaton PLC and Yokogawa Electric

Considering the 90-day investment horizon Eaton PLC is expected to generate 0.68 times more return on investment than Yokogawa Electric. However, Eaton PLC is 1.48 times less risky than Yokogawa Electric. It trades about 0.18 of its potential returns per unit of risk. Yokogawa Electric Corp is currently generating about -0.08 per unit of risk. If you would invest  30,253  in Eaton PLC on September 12, 2024 and sell it today you would earn a total of  5,596  from holding Eaton PLC or generate 18.5% 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.  Yokogawa Electric Corp

Eaton PLC

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Eaton PLC displayed solid returns over the last few months and may actually be approaching a breakup point.

Yokogawa Electric Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Yokogawa Electric Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Eaton PLC and Yokogawa Electric

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

The idea behind Eaton PLC and Yokogawa Electric Corp 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.