Correlation Between Hillenbrand and Eaton PLC

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

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

Diversification Opportunities for Hillenbrand and Eaton PLC

0.85

Correlation Coefficient

Hillenbrand  Eaton PLC

Very poor diversification

The 3 months correlation between Hillenbrand and Eaton is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Hillenbrand and Eaton PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eaton PLC and Hillenbrand 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 Hillenbrand are associated (or correlated) with Eaton PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eaton PLC has no effect on the direction of Hillenbrand i.e., Hillenbrand and Eaton PLC go up and down completely randomly.

Pair Corralation between Hillenbrand and Eaton PLC

Allowing for the 90-day total investment horizon Hillenbrand is expected to generate 1.98 times more return on investment than Eaton PLC. However, Hillenbrand is 1.98 times more volatile than Eaton PLC. It trades about 0.07 of its potential returns per unit of risk. Eaton PLC is currently generating about 0.04 per unit of risk. If you would invest  2,761  in Hillenbrand on September 28, 2024 and sell it today you would earn a total of  313.00  from holding Hillenbrand or generate 11.34% return on investment over 90 days.

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

Hillenbrand  vs.  Eaton PLC

Hillenbrand

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hillenbrand are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Hillenbrand demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Eaton PLC

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Eaton PLC are ranked lower than 2 (%) 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.

Pair Trading with Hillenbrand and Eaton PLC

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

The idea behind Hillenbrand and Eaton PLC 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.